Cutting Taxes, Increasing Tax Revenue, and Fiscal Policy

Government’s Goal In Cutting Taxes Reflected In the Budget

Amadeo, K. (2022). Tax cuts, types, and how they work. The Balance. Web.

The article is devoted to tax cuts and their impact on the economy. The most evident thing about tax cuts is that citizens approve of them more than of tax rises. They are one of the measures that help fight economic recession because they stimulate the economy by putting larger amounts of money into circulation (Amadeo, 2022). The most evident government goal of cutting taxes concerns improving the state of the country’s economy and gaining more trust from the citizens. However, the economists point out that this measure helps only from the short-term perspective (Amadeo, 2022). In the long term, tax cuts lead to federal debt increase, which may lead to a greater recession in the future.

Thus, as a rule, taxes are cut in order to end an economic depression by giving more money to the taxpayers. Lower taxes may stimulate growth that will finally lead to an increase in tax revenue (Amadeo, 2022). However, cutting taxes may have unpleasant consequences due to the fact that they may increase deficit if they are not compensated by cutting expenses as well. Hence, the government should cut taxes with caution as it is quite difficult to increase them without provoking a wave of protests among the citizens.

How the Government May Increase Tax Revenue

Tax Policy Center (2020). What options would increase federal revenues? Tax Policy Center’s Briefing Book. Web.

The article describes measures that the US government may implement in order to increase tax revenue. Thus, they may raise taxes, cut tax breaks, expand the tax base, levy new taxes, or improve enforcement (Tax Policy Center, 2020). Congress may either change the existing tax policy using the measures described above or enact new taxes. In that case, the major sources of income will be a value-added tax, a wealth tax or tax on financial transactions, or unhealthy food and drinks, which were proposed not so long ago.

However, one of the healthiest means that enable the government to get more tax revenues without raising the existing tax ratios or introducing new taxes is boosting economic activity. Policies boosting economic activities may increase not only incomes and wealth but revenues as well (Tax Policy Center, 2020). Such policies concern investing in infrastructure, innovation, and education, increasing the number of people in the labor force or reforming social programs that discourage the citizens from working. However, it is necessary to understand that economic growth depends on policy specifics and strong or weak points.

Fiscal Policy

Gaspar, V., Piazza, R., Medas, P. & Lizarazo, S. (2021, October 18). The role of fiscal policy to manage debt, inflation, and COVID-19. World Economic Forum. Web.

The article is focused on the influence of pandemic emergencies and debt on the fiscal policies of both advanced economies and developing countries. During the pandemic, the public debt has significantly risen, so the countries need to orientate their fiscal policies on their own circumstances in order to decrease it. The authors give statistics according to which fiscal policy in developed countries stays quite stable and supports the economic activity of the citizens (Gaspar et al., 2021). At the same time, the situation in low-income countries is not that stable, so the developing economies face a crisis. Due to that and to the influence of the pandemic, fiscal support in these countries has become quite limited.

In order to improve the situation in developing countries and save the progress in the advanced economies, it is necessary to take into account pandemic policies and economic prospects. Apart from that, the authors mention that low-income countries should try to increase tax revenues and spend money from their budget more effectively (Gaspar et al., 2021). Apart from that, all countries should strengthen the credibility of fiscal policy. It will increase further public support in the short-term perspective without losing people’s credit.

References

Amadeo, K. (2022). Tax cuts, types, and how they work. The Balance. Web.

Gaspar, V., Piazza, R., Medas, P. & Lizarazo, S. (2021). The role of fiscal policy to manage debt, inflation and COVID-19. World Economic Forum. Web.

Tax Policy Center (2020). What options would increase federal revenues? Tax Policy Center’s Briefing Book. Web.

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StudyCorgi. "Cutting Taxes, Increasing Tax Revenue, and Fiscal Policy." December 26, 2022. https://studycorgi.com/cutting-taxes-increasing-tax-revenue-and-fiscal-policy/.

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StudyCorgi. 2022. "Cutting Taxes, Increasing Tax Revenue, and Fiscal Policy." December 26, 2022. https://studycorgi.com/cutting-taxes-increasing-tax-revenue-and-fiscal-policy/.

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