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Joseph M2D1A: Effects Of Supply Side Economics

782 Words4 Pages

Joseph M. Weathersby
M2D1: Expository Essay Draft
SUPPLY SIDE ECONOMICS
Excelsior College
ENG101A: ADVANCED COMPOSITION MAY2018 30057953 [8wk]
ENG101A
May 20, 2018

Supply side economics, also know as “Trickle Down Economics” refers to government policies that argue economic growth can be most effectively created by lowering taxes and decreasing government regulations. According to supply-side economics the effects of the corporate tax cut will “trickle down” and workers will benefit. Consumers will benefit from a greater supply of goods and services at lower prices and Employers hire more workers at higher wages. It also suggest tax cuts for households would boost the rate of return on an hour of work encouraging laborers …show more content…

Economist Arthur Laffer developed the theory of the Laffer Curve in 1979. He argued that the effect of tax cuts on the federal budget are immediate. Arthur Laffer who advised President Ronald
Reagan on what would be the maximum effective tax rate to maximize tax revenue. For example If tax rate = 0%, tax revenue = $0 If tax rate = 100%, tax revenue = $0 because no one would work if the government took 100% of their income as taxes. Thus, there is some intermediate tax rate at which tax revenue is a maximum. They argued that tax rates are too high and that a decrease in tax rates will not only cause output to increase, but also tax revenue to …show more content…

Arthur Laffer argued that every dollar cut in taxes reduces government spending by exactly one dollar. The theory also suggest tax cuts have a multiplier effect on economic growth. Every dollar in tax cuts translates into increased demand. Because it stimulates business growth, which results in additional hiring. How much effect tax cuts have depends on conditions when they occurred. Questions like is the economy growing or in a recession? Which taxes were cut? How high was the tax rate? If taxes were in the prohibitive zone, then cuts will have the best effect. If taxes are already low, then cuts won't do as much. They will only reduce government revenue and increase deficits without boosting growth enough to offset the revenue lost. Before the tax cuts went into effect the consensus was the tax cuts are going to mostly benefit the rich and those benefits are not going to “trickle down” to the rest of Americans. After the tax cuts went into effect the consensus is tax cuts are mostly benefiting the rich, and the benefits are not trickling down to rest of Americans. In contrast to supply-side economics is the Keynesian theory which states that demand is the primary driving force. According to Keynesians, economic growth is boosted by putting more money into the economy, creating jobs and increasing

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