how would tax cuts lower the deficit?
Republicans have been recently saying that the government needs to cut tax which would lower the deficit but i don;t understand how it would do that.
- 10 years agoFavorite Answer
They don't. It's been proven in practice twice -- with catastrophic increases in the deficits -- once in the Reagan administration and again in the GW Bush administration.
The theory, now thoroughly debunked by over 95% of all sane economists, is that tax cuts at the highest earnings levels generate jobs via a "trickle down" effect from the top and that this creation of jobs raises incomes and tax revenues even though the rate is lower. The reality is that demand for goods and services are what created jobs. When a company cannot produce enough goods at an acceptable quality level to meet demand, only then are jobs created. This "supply side" economics of cutting taxes to lower deficits and create jobs is patently absurd on its face. No job has ever been created by a tax cut, especially tax cuts in individual income tax rates. Those tax cuts go straight into the pockets of the investor, not given away to created unneeded jobs.
- mrreliable3599Lv 710 years ago
Can you understand why, when a retail store has a sale and lowers prices, they sell more merchandise and make more profit?
Tax cuts work exactly like that.
The tax load directly affects the activity being taxed. Higher taxes, less activity. Lower taxes, more activity. There is a sweet spot that will maximize return. Our tax load hit that spot a long time ago.
I wanted to invest some money last week. Instead of investing in the stock market or bonds, etc., that give off taxable income, I bought a plot of land. Bush's tax cuts of the early 90's had what's called a "sunset provision," where the taxes automatically go back up at the end of this year. And with the clowns in Congress, it looks like they're going to let those cuts expire. I'd rather sit on my plot of land and not pay taxes than let the federal government suck every bit of income I make off the thing.
That's how it works. Now the corporations don't have my money to invest.
Good thing we all stuck it to those evil, greedy corporations, isn't it. Of course when we stuck it to the corporations, our economy tanked, retirement plans vanished, and unemployment went sky high, but at least we were able to feed our personal agendas and egos and stuck it to the corporations.
In the 80's after Reagan implemented big tax cuts, revenue to the U.S. Treasury more than doubled, almost tripled. The defict was still a problem because unfortunately the spending doubled and tripled too.
That's how tax cuts increase revenue.
- Wayne ZLv 710 years ago
They don't. It is just a myth.
The theory is that people would work more and make more if their tax rate was lower and, if they make more, they would pay more taxes. Unfortunately, this has never actually been proven in the real world. Also, their theory is that a reduction in the capital gains rate would encourage people to invest and then sell at a gain. They say that people don't invest if the capital gains rate is high and, if they do invest, they don't sell if the capital gains rate is high.
Truthfully.....it is just a give away to the rich.
- I_think$Lv 610 years ago
... and when people have more take home pay, they spend more, meaning a merchant makes a profit and pays a tax, and also hires more employees to sell more products, and they pay taxes on their wages, ... and the maker of the product hires more production workers, and buys more raw materials, meaning mining, refining, trucking, accountants to count the money, etc and all pay some taxes ... and buy more. This is called the multiplier effect. Also less people on welfare, medical coupons, section 8 housing, etc.
Anyway, that is the theory.Source(s): accounting degree
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- Anonymous10 years ago
They didn't when Reagan or either Bush was president.