Principles of Economics Week 8 Discussion.docx - Exploring Tax Cuts Jobs and Tax Revenue There has been discussion about whether the Tax Cuts and Jobs

Principles of Economics Week 8 Discussion.docx - Exploring...

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Exploring Tax Cuts, Jobs, and Tax Revenue There has been discussion about whether the Tax Cuts and Jobs Act that took effect in 2018 will increase tax revenue. Tax revenue can be thought of an as average tax rate multiplied by taxable income. If the average tax rate falls while taxable income stays the same, tax revenue will fall. But what if the tax cuts increase taxable income? Both of the major schools of thought in macroeconomics (Keynesians and Neoclassicals) believe that tax cuts increase economic growth. Economic growth increases taxable income. Our recent economic growth has brought unemployment down to historically low levels. Think about this. Reply to these questions to begin your discussion: Do you think that the tax cuts of the Tax Cuts and Jobs Act will increase economic growth and taxable income so much that tax revenue will increase? Or do you think that the tax cuts will reduce tax revenue? Explain your answers. Yes, I think the TCJA will increase economic growth and taxable income because if the taxes are low it means folks have more disposable income. If folks have more taxable income, the more they are able to spend, and the more they spend, the more taxes are being paid, and more money is generated throughout the economy. People will also have more spending power to invest in stocks, bonds. They will also have more money to take vacations, purchase homes or a bigger home, purchase a car or a better or larger vehicle. With the tax cuts, more revenue will be generated throughout the economy, because people have more money to spend and invest. In addition, businesses will start producing more of their products based on the new supply-demand which will boost economic output allowing companies to hire more folks to produce more of their product(s).

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