Tax Cuts
When answering the question: how can tax cuts revive our economy?, one must first understand exactly what taxes are and how they influence the economy and spending of individuals. There are different terms that deal with taxes such as fiscal policy, tax multiplier, aggregate demand and more: these terms also need to be understood when answering the question. Taxes are an amount of money that is paid by the private sector to be collected by the government. Taxes come in a variety of forms (sales tax, income tax, use tax) and can be collected at different increments (per purchase, per useage, monthly, annually). Fiscal policy is the policy and changes that the federal government makes in regards to taxation of the people. It can be a decrease or an increase in taxes. Fiscal policy is usually made and changed to try to maximize employment, price stability and economic growth. Expansionary fiscal policy occurs when there is a decrease in taxes and an increase in government spending. Tax multiplier is the idea that when taxes are decreased by a certain amount then people will spend a multiplied amount more on goods and services. For example, if the tax multiplier is 3 and a person saves $100 from tax cuts the idea is that that person will spend $300 (3 x $100) on goods and services. Aggregate demand is the amount of goods and services that people, businesses and the government spend per year.
In theory, tax cuts due to fiscal policy will help revive and stimulate the economy. These fiscal policies of tax cuts usually occur when aggregate demand is low and it needs to be increased. According to the theory that the tax multiplier works, when tax breaks are given then people spend more money than otherwise. This will then increase aggregate demand, and help create a cycle of increasing the economy. If this theory holds true then tax cuts will benefit all in the long run. Although a small percentage of tax cuts may be given, people will spend a larger amount...