Supply Side Economics

Tax is one of the most talked and disliked thing in the world. Because of that, no one fancy’s paying higher taxes. However, we live in real world, and sometimes we need to do things we don’t like. Even though most people agree that higher tax rates are bad, but they don’t know how to fix it and come up with the ideal tax bracket. Most of the time the discussion around this issue intense and spirited. For instance, you two political parties in US with different ideas. The Democrats want to raise taxes in believe that it will bring huge revenues and it will help cut the deficit and help the government to spend on public services. On the other hand, you have Republicans who believe in supply-side economics which says that tax cuts will stimulate

This theory is very popular for conservative in US and says that increase in factors of production such as capital, labor, entrepreneurship, and land drives the economic growth. It says higher taxes and too many regulations are barrier for the growth. Hence, the theory encourages lower taxes and fewer regulations assuming that this will give small and big businesses an incentive to expand their capacity and help the people. Also, it will give non-business people more income in which they could spend on buying more goods and services. One of the bedrocks of supply economics is Laffer curve. This curve shows the relationship between tax rates and tax revenues. It says that the more you raise the tax rate the more tax revenue you collect until you reach to a maximum point where the tax revenue starts falling. Another idea that supports tax cuts is an expansionary fiscal policy even though it is usually applied during recession; which says that tax reduction will boost the economy by increasing savings and

These cuts were taken in 2001, and in 2003; they were called Economic Growth Tax Relief Reconciliation Act of 2001(EGTRRA) and Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA). The results of these tax cuts were not good. They didn’t create that much of many jobs. Instead, the top 1% of the population was the highest beneficiaries of the cuts. According to NY times and Center on Budget and Policy Priorities the top 1% of the households got an average about $50,000 a year because of the tax cuts. While the bottom 20% saw the income only jumping a minuscule 1% after the tax cuts. The figure below illustrates just