Can someone break down for me how increasing or decreasing taxes effects the economy?

Question

Can someone break down for me how increasing or decreasing taxes effects the economy?

Answer 1

Economic activity is the sum of spending for consumption, investment and government. The government gets the money from taxes, borrowing, or printing money(usually not done to a large  amount because produces inflation and it will harm the economy). To first order taxes  reduce spending and savings by taxpayers and borrowing reduces the fraction of savings spent on investment. The second order effect of taxes is that it reduces the rewards of work in the market place  and will cause people to substitute  household production that can not be taxed or leisure  for labor, so it will reduce taxable income. How and what you tax  also cause people to change how they receive income and spend so it can be used to modify behavior.

Note: Government revenue increases  most years when the economy is not going into a recession because of inflation and population growth so the fact that it increase after tax cuts does not mean that it caused by the cut. It would  have also increased without the cut. Also the timing of taking income from capital gains is strongly influenced by impending changes in capital gains tax rates. Taking this into account  a careful analysis of the data  does not show that the tax cuts increases revenue.

Answer 2

In general if a policeman works for you he protects your interests and taxation defines for the government worker who exactly he works for.

In the past this has lead to policemen "declaring riots" when labor unions picket and killing innocent people. Period.

In the present, it means that I have been shot by "influential people" and though they are not nice guys and I was a cop, it doesn't even make the papers or get reported to the FBI or any other statistics calculating system.

Because that would lower property values.

Furthermore, de@dbeat dad laws are not possible when policemen respect the rights of citizens over vested interests. Why? because the "child protection act" and it's successor acts never were written to protect children, but rather to deprive children of breadwinning family members who might be in a possition to argue for better wages or sick leave otherwise. In fact no civil rights at all are possible for the lower classes under de@dbeat dad law ~ with an agressive uperclass in the area willing to break the law and a police force willing to look tyhe other way when "it's employer" breaks the law against the interests of "non-taxpayers" or minimal taxpayers. Policemen that find they work for working class men protect working class men. But Policemen, even honest one's who work with police departments that think that they work for the "taxpayer" when the local "taxpayer" is Chinese based (or other nation's) multi-national corporation might not have the oportunity to do the right or noble thing.

Paying taxes does not impoverish in a liberal society with wage controls. Not paying taxes makes one a slave.

Answer 3

If you tax at 0%, your government goes broke, and the economy will be swinging without a regulatory net. Shortly chaos will ensue, as lack of functions such as law enforcement and fire protection become felt.

If you tax at 100%, our economy grinds to a halt, and shortly thereafter, your government goes broke.

Given that government is a necessary evil to an economy, the idea is to balance the tax rate to optimize government income. Raising taxes from that point will drag on the economy, as tax dollars which would otherwise be reinvested in growing the economy would instead go into the black hole of government. Lower taxes from that point will free up more dollars to reinvest, but at the expense of government services which help support the economy.

Interestingly, most economists who support this theory of a pinnacle tax agree that a tax rate around 10% is the optimum. This is why when Truman, Kennedy, Reagan and Bush Jr all lowered taxes, government revenue went up.

Answer 4

It is a general principle that if you tax something, you get less of it.  Which means that taxes must not be too high, lest they stifle the economy.  Before the present administration, it is clear that capital gains taxes were too high -- because, when they were reduced, actual tax collections increased substantially (from $50 billion to $80 billion a year).  Tax increases in 1932 ruined the economy (which was already rocky because of tariff increases), and the resulting Depression lasted until the beginning of the war.