Tax cuts especially for business and high incomes

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Tax cuts (especially for business and high-incomes since they have the potential to produce the most) lead to consumer savings which leads to business investment which leads to economic growth which leads to higher employment. (trickle-down theory) Help the rich, benefits will reach everyone. Tax cuts pay for themselves through growth, which creates more prosperous tax payers to replace tax money lost in the cuts. Propensity to invest is a direct function of the tax rate. As tax rates rise above a certain level, they so discourage economic activity that total tax revenue is reduced. Tax cut can raise revenue and reduce deficits by stimulating the economy. The theory can be summarized by the Laffer Curve. 13
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ISS 225 – Power, Authority, Exchange Economic Order                                      VI. Budgeting and Tax Policy One task that the president and Congress must do every year is appropriate funds, produce a budget. A budget is simply defined as revenues plus expenditures. Two questions central to public policy and to budgeting is who bears the burdens of paying for government and who receives the benefits? Where does the money come from and where does it go? Do you get your money’s worth? Public opinion polls show that Americans want the government to balance the budget, maintain or increase the level of government spending on most policies (i.e., they want government to do more things for them), and keep taxes low. (Not an easy task!) A. Sources of Revenue 1. Income Tax The first peacetime income tax was enacted in 1884 and declared unconstitutional in 1895 by the Supreme Court. In 1913, the Sixteenth Amendment permitted Congress to levy an income tax. The Internal Revenue Service was established to collect it. Corporations as well as individuals pay income taxes. Today corporate taxes yield about 11 cents of every federal revenue dollar, compared to 46 cents from individual income taxes. 2. Social Insurance Taxes Social Security taxes come from both employers and employees. Money is deducted from employees' paychecks and matched by their employers. This money is earmarked for a specific purpose (Social Security Trust Fund) rather than going into general fund, like income tax, although the government has and does borrow from the trust fund.) 14
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ISS 225 – Power, Authority, Exchange Economic Order Social Security taxes have grown faster than any other source of federal revenue. 1957 - 12 percent of federal revenues, today – about one third (34%). 3. Borrowing When the federal government wants to borrow money, the Treasury Department sells bonds, guaranteeing to pay interest to the bondholder. Today the federal debt is over $8.6 trillion – this is the amount of debt held by the public in the form of Treasury Bills. It does not include the amount the government borrows from its own accounts (trust funds _social security and Medicare, civil service and military retirement plans, unemployment insurance funds, and transportation funds). This is about $4.5 trillion.
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