How do tax cuts affect the economy?

Tax cuts improve the economy by giving the people more spending power and higher consumer confidence which leads to them spending more of all of their income which leads to more jobs, more business investment in more efficient technologies, and ultimately higher GDP growth.

Less is more

Lower taxes, when coupled with lower or controlled government spending, almost always has the opposite effect of what most people would think. Increased government revenue is one almost immediate symptom, as the tax cut encourages people to buy more products and services, stimulating the economy and creating more jobs. Less taxes (as a percentage of earnings) going to the government coffers and more staying in the pockets of average taxpayers always has a positive effect on the overall economy and allows a vibrant free democracy to thrive and grow. Remember that money the government uses to spend is not their money. It is the people's money that they take from us through various taxes. Lower taxes on the manufacturing, service and business sectors allows them to spend more money on their business and create more jobs. More revenue through taxes as a result of this increased commerce allows the government to maintain or even increase spending on precious social programs and health care. The resulting increased revenue allows a responsible government to borrow less money or even reduce government debt, relieving pressure on currency supply and interest rates, resulting in lower interest rates, which is good for everyone. Lower tax rates are a classic case of 'less is more' and any good government should always be searching for ways to reduce taxes and spending. It's your money.

Answer

However, some disagree on the effectiveness of this measure. Sometimes, the benefits are eaten up by a rise in prices, like the rise in oil prices during the Iraq wars. Other times, the benefits don't extend to all social classes or the benefits disappear after a short time. All tax cuts should be thoroughly researched as to their specifics.

Answer

Forget the meme that tax cuts stimulate employment. I can assure you it's not true. Most of the revenue from a tax cut winds up with the rich, and they invest in stocks purchased from other rich people far more than they spend on consumer goods.

It would be easy to argue that a tax increase would benefit the American people as a whole more than a tax cut. Get yourself a good old-fashioned tax and spend liberal and he's going to spend on things like increased road construction. They'll have to hire to do it, and the people who were hired spend their money in the stores. IIRC a dollar turns over in the community seven times...so a billion-dollar tax increase earmarked for highway construction becomes a seven-billion-dollar boon to the economy.

First answer by Rawnoc. Last edit by Jmowreader. Contributor trust: 190 [recommend contributor]. Question popularity: 43 [recommend question]