Explain the Effects of Raising Taxes on Government Revenue and Tax Cut on Government Budget (Essay Sample)
Explain the Effects of Raising Taxes on Government Revenue and Tax Cut on Government budgetsource..
Explain the Effects of Raising Taxes on Government Revenue and Tax Cut on Government Budget
The effects of raising taxes on government revenue, and tax cut on government budget.
A country's economy is a vital aspect of a nation's identity that requires monitoring, and that is why it is the mandate of the government of the day to ensure that a country's economy is regulated and always kept in check. Discretionary fiscal policy and automatic stabilization are among the instruments the government can use to modify the economy.
Discretionary fiscal policy is a government mechanism put in place by Congress to sway the economic situation of a country. Regulation of government spending and adjustment of tax rates are ways used to regulate the economy; in so doing, the government can either slow down or trigger economic growth depending on the circumstances. The discretionary fiscal policy is classified into two categories: Contractionary and Expansionary fiscal policy (Philip et al.,2016). The contractionary policy being the policy used when there are high, unsustainable growth and the Expansionary approach used during economic recess. The government counters high, unsustainable economic growth by raising tax rates, forcing the taxpayers in the various tax brackets to remit more in taxes, reducing cash in the taxpayers' hands, which reduces the demand of products leading to low economic growth. However, during economic downtime, the government will issue tax cuts to the citizens; the citizenry will pay lower taxes; meaning they will have more cash for the consumption of goods and services, thereby enhancing economic growth.
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