Anonymous asked in Business & FinanceTaxesOther - Taxes · 1 decade ago

do tax cuts work......?

just wondering, please be as detailed as possible. the top 2 answers get 5 points each!


work = they stimulate the economy, get people to spend, etc.

4 Answers

  • 1 decade ago
    Favorite Answer

    Better go back and read up on how Y!A works, Sparky. You can pick ONE best answer and that one gets 10 points.

    So, now that that's out of the way, I have to ask: Do tax cuts work for what?? They work OK to increase your spendable income a tad, that's for sure. That's about it though.

    If you're asking if they "stimulate" the economy then the answer to that is, "Not much!" $1 in tax cuts generates about $1.02 in economic activity. On the other hand, $1 in government spending generates $1.59 in economic activity. So, 2% ROI or 59% ROI.

    Why such a lousy ROI on tax cuts? Well, historically, most of them are targeted at the wealthy. The wealthy tend to amass wealth, not spend it. A $50k tax cut for a $5 mil a year executive more than likely will either be invested in stocks rather than hire another employee.

    The relatively small amount of money that low and middle income folks get from tax cuts is not enough to make much of a ripple in the economy. In fact, they're still trying to figure out how much last year's rebates, at a cost of $155 billion, did to affect the economy. Most estimates are on the order of .05% to .15%. Not a lot of bang for the buck.

  • 1 decade ago

    Usually, but it is not a slam dunk.

    Many middle class spend all their income after taxes. If they have more income to spend, they spend more. This makes it more attractive for business to sell to people, hiring more people, buying more things and making improvement to their business. That is the optimistic viewpoint.

    At least that is how the theory goes. If the mood is too gloomy, the people squirrel the money away, don't spend, businesses don't hire, and don't buy things and improve. That is the gloomy scenario.

  • 1 decade ago

    Yes Because If you give good tax breaks to companies they tend to hire more people,more people working more people paying tax more people spending =tax breaks= win

    Source(s): just think about it
  • Cosmos
    Lv 4
    1 decade ago


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