Economics - and more, most likely within the following 3...

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Temporary Tax Cuts increase the returns at first but they lose a huge sum of returns in a very short time horizon. Fundamentally, “it is the equivalent of borrowing from high income individuals at a higher than market interest rate and redeeming the bonds relatively quickly. These are some issues due to which explicit tax reduction will be delayed until the future when assets are sold with a higher basis,” (Larson, 2003) so that for those who consider that some portion of any cash flow derived from a tax cut is used up, this enticement will not take place until 3 to 5 years in the future. There will be a present value tax benefit, but it will be of insignificant size, temporary in nature, and not likely to have much consequence on cumulative consumption because any income effects should be spread over a long period of time. “It was found that temporary tax cuts generate revenue in first two years but lose that revenue
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Unformatted text preview: and more, most likely within the following 3 years. A capital gains tax cut appears the least likely of any permanent tax cut to stimulate the economy in the short run; a temporary capital gains tax cut is unlikely to provide any stimulus. (Larson, 2003) Permanently lower capital gains taxes can add to economic efficiency in some ways and detract from it in others. Capital gains tax cuts would favor high income individuals, with about 80% of the benefit going to the top 2% of taxpayers. A fiscal policy can stimulate the economy in the short run only if it increases aggregate spending. There are causes to anticipate that capital gains tax cuts would have the least simulative consequence on the economy of virtually any fiscal stimulus option. (Larson, 2003) Reference: ------Larson, J. (2003). "Tax cuts: Issues and analyses" Nova Science Publishers, New York------...
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This note was uploaded on 12/04/2011 for the course ECONOMICS 201 taught by Professor Rcollier during the Spring '10 term at Portland CC.

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