Salome said:
I don't have a problem with tax cuts when they are needed
and I do understand why they usually have a short term positive effect on the economy
but I didn't think that the tax cut issue in the US was only recession related
correct me if I'm wrong, because I'm really don't spend as much time checking the news as I should, but didn't tax cuts play a major part in Bush his campaign to become president?
if I'm not mistaken the US weren't in a recession back then
and still tax cuts were presented as some sort of holy grail for the US economy
while tax cuts really offer nothing more than short term relief even in the most positive scenario
and I don't believe many economists really think otherwise
It is true that there are those in the USA, mainly on the Republican side who believe tax cuts are simply a matter of principle. I disagree with that and believe that its a matter of what is necessary strictly from an economic point of view. I was opposed to Bush's tax cuts when he was running for President because the economy was red hot and all the tax cuts would have done was created inflation.
Most economist don't view tax cuts in terms of short term or long term benefit. Its simply a question of getting the economy to expand during downturns or recessions. Expansionary policy is the answer to economic downturn and recession. Had I answered that question differently in my Economics 101 class, it would have been marked wrong.
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Salome said:
ndeed we do
the point is though that I pay about about 40% on income taxes alone (if my income would be higher it would go up to 50%)
if the US government would focus less on tax cuts for short term success and election purposes (because it does sound nice to keep more money in your wallet) then perhaps they would be able to spend as much as they want on the US military and still would be able to provide a higher standard of living for the avarage citizen
The reason the USA has one of the highest standards of living in the world is that it creates and environment that allows its citizens to achieve a high standard of living rather than have the government do much of that for them.
The best way for the government to actually increase its tax revenue is NOT through raising taxes, its through economic growth. The reason the US government has massive surpluses in the late 1990s was because of huge economic growth. The more money individuals make from economic expansion, the more money the government recieves. While the US tax rates are lower than the Netherlands, the amount of money Per Capita that the US government takes in each year from taxes is higher than the Netherlands.
Lower taxes allow for greater economic growth, which actually brings more money into the government than a higher tax rate would. Its a question of balance of course. Continued tax cuts and drops in tax rates, taken to an unusual extreme, would of course eventually lose their effect and would be to small to support the needed services of the government. The tax rate which allows for full employment and maximum economic performance will in the long wrong bring in far more money to the government than high tax rate which will obviously bring in lots of revenue for the government in the short term. As economic performance declines under a high tax rate, so will the revenue that comes into the government. The issue is achieving full employment and maximum economic performance. The tax rate that best supports achieving those objectives is also the tax rate that will in the long run bring in the most money to the government.
Salome said:
that's why I said that I think the influence the government has over the economy is grossly overestimated
government decisions, including tax cuts, do not lead the economy on it's way
Thats not true. China's economy is expanding because the government has reduced taxes and privatized its industries there by reducing the Governments role in the overall economy. Cutting taxes is a way of reducing the governments role in the economy. You have the Soviet system where the government controlled everything compared to the US system where the governments role in the economy is much reduced. Still, when the Government is taking 30 or 40% of the countries income in taxes, it still has a signifcant effect on what happens in the economy, which is why tax cuts can lead an economy on its way as has been proven and shown by economist.