Question

Imagine that a group of advisors to the president has suggested providing a tax cut for the middle class in order to stimulate the economy and reduce unemployment. The president has asked for your analysis of this proposed tax cut. Describe how an economic scientist would approach the tax cut recommended by the advisors in the scenario you just read. What are some economic factors that the economic scientist would consider when crafting his or her statement on the tax cut proposed? Describe how an economic policy advisor would approach the same tax cut and provide the reasoning behind the position.

Answer 1

It is a typical conviction that lessening marginal tax rates would prod financial development. The thought is that lower tax rates will give individuals progressively after-charge pay that could be utilized to purchase more products and ventures. This is a demand-side contention to help an expense decrease as an expansionary fiscal improvement. Further, diminished tax rates could lift saving and investment, which would expand the gainful limit of the economy and efficiency. Cutting taxes decreases government incomes, in any event, for the time being, makes either a spending shortfall or expanded sovereign obligation. The characteristic countermeasure is cut spending. Nonetheless, pundits of tax breaks would then contend that the tax reduction is helping the rich to the detriment of poor people, because the administrations that would almost certainly get cut, is useful to poor people. Advocates contend that by returning cash in shopper's pockets spending will increment. Thus the economy will develop, and wages will rise. Toward the day's end, the result relies upon where the cuts are made. Monetary development is to a great extent unaffected by how much duty the affluent compensation. Development is bound to spike if lower salary workers get a tax break.