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A New Idea For The American Tax Code Essay

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This idea of reducing taxes to increase investment within the economy sounds like a good idea but hasn’t lived up to its expectations historically. The idea of supply side economics wasn’t a new idea for the American tax code. During the early 1920s, income tax rates were cut multiple times which averaged to a total of most rates being cut by a little less than half. The Mellon Tax Cuts named after Treasury Secretary Andrew Mellon under Presidents Warren Harding and Calvin Coolidge. He believed that changes in income tax rates causes individuals to change their behavior and practices. As taxes rise, tax payers attempt to reduce taxable income by either working less, retiring earlier, reducing business expansions, restructure companies or spending more money on accountants to find tax loopholes. If executed properly tax cuts can actually benefit economic growth, data from the Internal Revenue Service(IRS) showed that the across-the-board tax cuts in the early 1920s resulted in greater tax payments and larger tax share paid by those in the higher incomes. As the marginal tax rate on the highest income earners were cut from 60 percent or more to just 25 percent, the amount that this tax group payed soared from around 300 million to 700 million per year. (See Figure 2) This sudden massive increase in revenue allowed the U.S. economy to rapidly expand during the mid and late 20s. Between 1920 to 1929, real gross national product grew at an annual average rate of 4.7 percent and
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