Encouraging Economic Growth with the Fair Tax Act

Recent worldwide recession, moderate recovery, and the threat of the recession called "secondary recession" have confused most Americans. The problem is complicated. The way from now is not clear and full of danger. It does not appear to be clear about who should do what. While political discussions surpassed ideological conversation points, 9% of voters were unable to find a job. Food, housing and medical prices are rising, but wages are still sluggish. In the housing market, while the interest rate has been around zero, we are struggling hard.

One of the most frequently discussed issues in economics is how tax rates are related to economic growth. People who support tax cuts argue that lowering the tax rate will increase economic growth and prosperity. Others insist that, if we reduce taxes, almost all the benefits are attributable to wealthy people. What is the economic theory advice on the relationship between economic growth and taxation? When studying economic policy, it is always useful to study extreme situations. In extreme cases, what happens if there is a 100% income tax rate or what will happen if you raise the minimum wage to $ 50 per hour? Although not quite practical, it shows a very surprising example showing the direction of important economic variables when changing government policy.

In this article we will explore how changes in personal income tax affect long-term economic growth. The structure and financing of tax reform are important to achieve economic growth. Reduction in tax rates may promote personal work, savings and investment, but if tax cuts are not raised by immediate spending cuts it will also lead to an increase in federal budget deficits and in the long term will save national savings Reduce the interest rate. The net impact on growth is uncertain, but many estimates indicate whether it is small or negative. Expanding the foundation can eliminate the impact of tax cuts on the fiscal deficit but at the same time it can reduce the impact on labor supply, savings and investment, thereby reducing the direct impact on growth I will. They will also redistribute the resources of each sector into their highest-value economic uses, thereby increasing efficiency and perhaps enhancing the overall economy.

Fair evaluation concludes that properly designed tax policy may promote economic growth, but there are many obstacles on the way and all tax changes will improve economic performance It is not. Taking into consideration the various channels that tax policies affect growth, tax changes are (i) incentives for work, savings and investments have a large positive incentive (substitute) effect, (ii) small or negative income (Iii) economic sector distortion and different types of income and consumption reductions, including cautious tax cuts on new economic activities, rather than bringing unexpected benefits to previous activities that will have an impact on (iv) Minimize increase / decrease in budget deficit