Public budgeting revolves around two basic powers – the power to raise revenue (e.g., to tax) and the power to use the revenues raised to accomplish legitimate constitutionally authorized goals (e.g., to spend). Both of these actions have a wide range of both intended and often unintended consequences. Economic policies and political realities often arise in issues of taxing and spending policies, their influence on the economy, and the resulting impacts on jobs, incomes, living standards and relative freedom and liberty. Ronald Reagan famously employed “supply side economics” and the Laffer Curve in the national budget and budget decisions. After carefully reading this week’s reading assignments, you will conduct your own research and write a concise but thorough research paper
1) explaining and examining the Laffer Curve and a historical perspective on the balance of tax burdens and revenue generation;
2) analyzing contemporary proposals and arguments for the tax cuts in tax reform;
3) analyzing the politics of tax cut discussions in contemporary budget and tax reform issues, and
4) providing a Judeo-Christian analysis of the potential role of tax cuts in contemporary tax reform.
Tax cuts in tax reform
The designing and implementation of any plan gives an individual, an organization or even a country a sense of direction considering they become aware of what is expected is expected them. Likewise, budgeting gives a country, an organization or even an individual with the foundation and blueprints to base all their activities. Budgeting, an opportunity for the creation of a financial plan on how to spend a particular amount of income. Notably, a budget much-needed an opportunity for governments and organizations to determine in advance whether they will have enough funds to finance their operations and activities. Moreover, budgeting low-income, to prioritize spending based on the order of preference and organizational needs. Budgeting ensures that an economy has enough funds to spend on the things that a country needs and the things that are important to the people of that country (Papp, Takáts, & Fonds monétaire international, 2008). This assignment will attempt to provide more information on the Laffer Curve and supply-side economics.
Public budgeting helps to allocate resources from opportunity cost where allocating resources to one project takes aware the resources from another project. In an attempt to make people understand the budgeting process, Arthur Laffer introduced the supply-side economic theory to show the relationship between tax rates and a number of tax revenues levied on the people. The supply-side economic theory states that increased production helps to push economic growth in the right direction. Notably, the supply side economics is directly opposite of Keynesian theory, and it states that demand for goods and services in a country is the primary driving force for economic growth. According to Laffer, when factors of production are more taxed, the less they generate regarding revenues (XIAO, 2017). Therefore, when these factors of production such as land, capital, labor, and entrepreneurship are lowly taxed, they substantially affect the income of a country or an organization thus providing more funds for the budgeting process. The supply-side economic theory works by offering incentives to organizations which in turn reduces the cost of production, thus giving them an opportunity to expand and grow to greater heights. Laffer goes on to say that through deregulation, a government has an opportunity to remove restrictions to grow and the expenses associated with compliance. Therefore, through deregulations, companies, and organizations are given opportunities to explore areas of growth new opportunities in an economy. In economics, tax incidences and tax burden help in analyzing the impact of a particular form of tax on the distribution of economic resources among the people. Notably, the largest part of public expenditure in the country comes from taxes from individuals and organizations which means that the citizens bear all the tax burden. Unlike the ancient days where total government expenditure came from taxes, currently, the government is borrowing internally and externally to finance part of its expenditure while at the same time engaging in income-generating activities (Xiao, 2017). Heavy taxes on individuals and organizations reduce disposable income which in turn limits its opportunities to grow and expand. However, to correct this situation, the government often gives tax holidays and incentives in An attempt to boost the economic power of most people and organizations in the economy.
Owing to the fact that taxes are the primary source of government revenues, almost every citizen in the country except the children have to contribute to the national treasure. Taxes comprise of mandatory financial charges and levies imposed on individuals and organizations in a country by the government or other governmental agencies to fund government operations and activities. Notably, there are different types of taxes levied on the people depending on the rules and regulations of their home countries. However, from time to time the government reduces the rate of tax charged (Biden & United States, 2010). Research shows that the tax cut has an immediate effect on the government and individual income considering that the cut will reduce the amount collected by the government as revenue which in turn increases the disposable income on an individual and organizational level. Advocates of tax cut reforms argue that reducing the taxes will increase the chances an opportunity of improving an economy by increasing individual and organizational expenditure. By increasing the disposable income at an individual and organizational level, the government will provide an opportunity for increased spending, which in turn will increase production of goods and services to meet the new demands. In the process, the government will boost the economy of the country. On the other side, those against the tax cut feel that reduction in the amount of revenue collected by the government will increase government borrowing. In the event that the government reduces the amount of tax levied on people, it has to find an alternative source of funds to finance its activities. In the process, it ends up borrowing more both internally and externally. In addition, this camp feels that tax cuts only help the rich as it leads to a significant reduction in the number and quality of services provided by the government (Dexter, 2011). In such events, the ability to access these much-needed services by low income earners is taken away considering that they entirely rely on these services unlike the rich people.
Research shows that the federal tax system significantly relies on the different types of taxes levied on the people in the country.lower taxes almost seem desirable from the taxpayer’s perspective, and there are arguably benefits of reducing the amount of tax levied on the people. However, what most taxpayers do not understand is the fact that tax cuts often come with some disadvantages such as the reduction of the amount of goods and services provided by the government to the society. Any reduction of revenue in a country means that the government has to reduce the amount of products and services it provides to the common citizen who in turn substantially adversely affects the lives of most common citizens in a country (Dexter, 2011). Therefore, as the government reduces the amount of tax burden, the richer continues to grow rich while the power continues to be poor.
According to Judeo-Christianism, Christians should honor the teachings of the bible regarding the tax systems. According to this perspective, Christians should give what belongs to Ceaser to Ceaser and what belongs to God to God. As a result, they must honestly pay their taxes and should actively participate in decision making to ensure tax policies are equality, fairness, and justice to all people in the society. Equity and fairness should be the primary driving factor for all tax policies (Xiao, 2017).
From the above-detailed research, it is evident that taxes play an important in the society to provide goods and services that help to improve the lives of the common citizen. However, it is prudent and fair to the government to ensure all their tax policies are fair and just to avoid larger burdens to the citizens.
Biden, J. R., & United States. (2010). Weekly address: Tax cuts & unemployment insurance. Washington DC: White House.
Dexter, B. L. (2011). Payroll Tax Cuts v. Bush Tax Cuts: Real Relief for the Plumber and Other Average Joes. SSRN Electronic Journal. doi:10.2139/ssrn.1969135
Papp, T. K., Takáts, E., & Fonds monétaire international. (2008). Tax rate cuts and tax compliance: The Laffer curve revisited. Washington, D.C.: International Monetary Fund, Policy Development and Review Dept.
Xiao, L. (2017). Theoretical Comparison of Supply Side Economics and Demand Side Economics. New Supply Side Economics, 1-29. doi:10.1007/978-981-10-4639-1_1
XIAO, L. I. (2017). NEW SUPPLY SIDE ECONOMICS: The structural reform on supply side and sustainable growth. SINGAPORE: SPRINGER.