Can Increasing Taxes Reduce the Budget Deficit?

However, there are also some drawbacks associated with raising taxes. Tax is a form of leakage from the circular flow of income leading to negative multiplier effect. If the government increases income tax rates, it might create disincentives to work. It is because when income tax increases, the opportunity cost for leisure time decreases; and people will have to work longer

The government uses taxes to subsidize universities and students. In order to achieve this, the government needs higher tax revenue to create money for subsidies.

The federal budget deficit is a much discussed and little understood subject in American politics. The current recession has dramatically decreased tax revenues, driving the United States federal government to increase spending in an attempt to stabilize the economy. As a result the current federal deficit is at over $1.3 trillion dollars. This is approximately $47,754 per U.S. citizen or $137,552 per U. S. taxpayer (U.S. Debt Clock: Real Time, 2012).

Any person struggling through difficult times will seek out other means of financial support including borrowing money that may be harder to pay back in the future. The United States will often follow a similar path and spend more money than it earns. Deficit spending in the United States comes with some advantages, disadvantages, and strong criticism. Some feel deficit spending is good for getting the economy back in motion while others contend it does nothing for the economy. The effects of deficit spending are carefully examined to determine if the United States is improving or degrading the future of the economy.

In order to acquire this, tax policies should revolve around the classical theory behind the six characteristics of tax economic growth – 1) accumulating capital, 2) keeping governmental small, 3) opening the economy to trade and foreign investment, 4) respecting property rights/rule of law, 5) avoiding unnecessary government regulation in the private sector, and 6) investing in human capital. Accumulating capital comes into place because if taxes on earnings continue to rise then those taxes placed on the individual’s use of capital would increase as well which would trigger economic growth. A small government will help towards economic growth because the purpose of a tax system is usually to help provide income to the government. Therefore, if the government were small it would not divert some of its resources to private sectors. Opening the economy to trade and foreign investment is another way that can stem economic growth because it can stimulate tariffs and certain restrictions on trade and investments. Fourth, respecting property rights/rule of law can trigger economic growth because if one is restricted from power over taxation on property it can lead to growth. Another way it can lead to growth is from avoiding unnecessary government regulation in the private sector. This includes behavioral tax which is a tax imposed to shape a consumers behavioral decision. For example, placing a higher tax on tobacco and cigarettes can lead to improve one’s health and lifestyle. As we know, certain merchandise currently have higher taxes, i.e. cigarettes. Creating a higher tax on cigarettes and other commodities can lead to an incentive for fewer individuals to buy the product. Smoking causes many health related problems, like heart conditions, cancer, and ultimately death. There are hundreds of cases daily with these effects and it is highly likely that the

The total U.S. budget deficit for this year is estimated to be $514 billion, compared to $1.4 trillion in 2009 (The Budget and Economic Outlook: 2014 to 2024, 2014). Over the last few years, the federal budget deficit has declined, and is projected to continue to decline this year and leading into 2015 (The Budget and Economic Outlook: 2014 to 2024, 2014).

The United States deficit, surplus, and debt will always have an impact on taxpayers. In the state of high deficit the government seeks ways to cut and save money for debt payment. The government does this by pulling funding from programs that have little government impact. Increasing taxes also supplies the government with extra income. In addition to the reduction or elimination of certain tax credits, the government analyzes school funding for cost effectiveness. Each step the government takes has a trickling effect on taxpayer’s dollar.

rate, in periods of higher income tax the GDP sees an increase thus proving that higher taxes do not create a drag in the economy. When the top marginal tax rate is at a 75 to 80 there is an about 4.6 GDP growth creating this “Sweet-spot”.

The United States of America is not leading into the direction our country was meant to lead. Our Forefathers that came before us and settled in the United Sates, fled here to be free from tyranny. They were escaping from Great Britain’s strict control and harsh taxation. After settling in America the Constitution was drafted to “form a perfect Union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the Blessings of Liberty to ourselves and our Posterity (Preamble to the United States Constitution).” After reading the preamble, I reread, and wondered how can the US be in the situation were in, if that is what our country ‘was’ built on? What direction is our

In 2013 the American Society of Civil Engineers released a report card after carefully analyzing United States infrastructure. The experts awarded the infrastructure a D+, which is usually considered a failing grade. Experts also pointed out the fact that most United States infrastructure is approaching the end of their expected life-spans. Those who are in charge of maintaining and repairing infrastructure have expressed a dire need for more funding. Deficient infrastructure has already caused thousands of deaths and will continue to do so if Congress does not step up. Congress should increase taxes in order to maintain and repair our failing infrastructure. Increasing taxes would not only help to ensure the people’s safety but it would also prevent the government from going further into debt and it's a fairly quick solution.

When a government’s spending exceeds its revenues causing or deepening a deficit it is called deficit spending. Deficit spending is only one of numerous tools used to help manage the economy. Deficit spending is presumed to stimulate consumer demand by helping the consumer to obtain more money to spend, in turn, the demand of product will rise. There are advantages and disadvantages to deficit spending that we will discuss further below.

Throughout history, taxation on United States citizens has proven to be a necessary component of a growing economy as means of generating revenue for the federal budget. The federal budget funds the many government programs implemented to keep the disabled, elderly, and unemployed from falling bellow the poverty level. Unfortunately, this fund is not always available when catastrophic evens, such as an economic recession, deplete the revenue coming in and create a budget deficit. In order to regenerate money coming in and replace the deficit, the government calls on money gained from taxes. What happens when tax money is already appropriated to other programs? A tax reform. A tax increase has many times been the

In addition to economic issues, taxation is also a political issue. Political leaders formulate tax policies to bring reforms in the taxation system in order to promote their agendas. The major tax reforms include: increasing or decreasing the tax rate, imposing new taxes on certain products and changing the definition of taxable income. It is evident from the research studies that no one deliberately wants to pay taxes. U.S’ tax policy reflects expression of influence - i.e., those who have power are successful in paying low taxes and their burden is shifted to people who have no power. Therefore retired individuals, small business owners and farmers find ways efforts to reduce their tax burden. Since its existence, tax policy has been enormously used for promoting political and economic agendas.

The Laffer curve is a concept which explains the relationship between government revenue from taxes and tax rates. The concept of the Laffer curve is that the higher the tax rate is the lower the output, that is to say for example, if the government imposed a higher tax rate, production would be lower and government revenue would therefore be lower. The Laffer curve was developed by an economist by the name of Arthur Laffer, a professor at the University of Chicago. Arthur Laffer does not take all credit for this theory, he claimed it was not new and that the concept was pretty straightforward and people already knew about it many years ago. The origin of the Laffer curve goes back to an article written by Jude Wanniski, associate editor of the Wall street journal at that time. Sometime in December of 1974, Wanniski had dinner with Laffer, Donald Rumsfeld who was the chief of staff to president Gerald Ford, and Rumsfeld’s deputy Dick Cheney, who was a former classmate of Laffer at Yale. All four were having dinner at a restaurant in Washington D.C. while they were talking about President Ford’s “Whip Inflation Now” proposal for tax increments then suddenly Laffer grabbed a napkin and a pen then proceeded to sketch a curve on the napkin about the relationship between tax rates and tax revenues. Jude Wanniski decided to name this relationship “The Laffer Curve”. And that is how The Laffer curve began. Vast majority of companies want to maximize their profit, so it

| Critics of spending hikes argue that tax cuts can expand both aggregate demand and aggregate supply and that hasty increases in government spending may lead to wasteful public projects.Tax cuts increase aggregate demand by increasing household’s disposable income, as