In 2003, the Internal Revenue Service began to mail out refund checks because of a change in the tax law. Econ

In 2003, the Internal Revenue Service began to mail out refund checks because of a change in the tax law. Economic forecasters predicted that consumption and GDP would increase because of higher refunds on income taxes.

Pretend as if you are an economist and explain your thoughts on whether the tax cuts from the past few years have been successful in promoting economic growth or in preventing a deeper decline? Are there other changes to fiscal policy that you feel would have been more successful?

3 Answers

  • 1 decade ago
    Favorite Answer

    It is about increasing money supply.

    The government can do this in two ways: print more money and spend it themselves or take less money in taxes from both corporations and individuals.

    Notable are Pres. Kennnedy and Reagan who reduced taxes substantially. In both instances a number of things happened, however, we shall focus on Reagan as this is germaine to your question in current history.

    Revenues to the Treasury increased because individuals were more likely to pay their tax liability than to attempt to avoid it.

    The cost of money went down because there is more money available for loans and investment and as with any other comodity, the more of something there is, the less value it has.

    Alone, this fiscal policy was not enough in 2003. Why? Because it was not coupled with increased private sector spending like what RR did in the '80.

    That spending reduced the opportunity cost to business to assume risk and provided for tremendous ecomomic growth throughout the '90s.

    The success or failing of the 2003 tax cuts were not solely of the policy itself. In fact, the policy was working until the Federal Reserve systematically and relentlessly raised the cost of money through the raising of interest rates.

    In effect, the FR actions shrank money supply and cancelled out the stimulus provided to the economy through the tax cuts.

    The current FR actions coupled with tax cuts will fully work through the economy in two years or so, making the next president look like a hero.

  • moglie
    Lv 5
    1 decade ago

    I'm not going to write your essay for you, but I'll give you a hint. Use Keynes' multiplier effect to explain how reducing taxes helps the economy grow/prevents steep declines.

    Government spending could also increase causing growth/reduction of decline while having it's own multiplier effect.

    I would argue that reducing taxes works better than increasing government spending (unless combining the two) because bureaucracy tends to create inefficiencies and it is better for the public to decide how to spend.

  • 4 years ago

    I am not easily fooled. Any mail from the IRS is offically deleted. If they want me, they know where they can find me. I also delete without opening any bank or saving institution emails. As a matter of habit, I delete about 95% of all emails without opening. And I use my company computer, because of the top of the line antivirus and antispam software along with firewall protection that is bullet proof. LOL

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