Do Tax Cuts Really Help The Economy?

Back in the early 2000’s, under President George W. Bush, certain tax cuts were put in place. The idea was that if taxes were lowered, consumer spending would increase and the struggling economy would rebound. Of course we all know the economy did not immediately rebound, and growth has been slow. These results beg the question “do tax cuts really help”?

An article in the Huffington Post suggests the answer is unclear.  The article’s highlights include:

• An increase in income for top wage earners only provides financial growth of 0.08%.
• When lower earners take home more in their paycheck, the economic growth is 0.38%.

This research suggests cutting taxes does little to help a stagnant economy when the cuts are at the top. In contrast, if lower wage earners receive a raise, even in the form of paying fewer taxes, the economic result is much better. Some possible reasons for this phenomenon is that when those with lower incomes feel the pinch, things like education and investments stall. A stall in the financial markets leads to slower financial growth, and more people holding onto what little money they can make. When education is replaced with taking a minimum wage job, out of fear of the rising costs of college, the result is a less diverse workforce. Another detrimental effect is that when wages are lower, the social policies that are designed to help take a hit. This may be due to the fact that only those with the largest paychecks are able to obtain top positions, and thus are the ones making policy. It is unlikely that a group not in need of assistance will work tirelessly to implement programs that offer assistance. So, if tax cuts aren’t the answer what is? Some say a flat tax, or an increase in minimum wage will help. But, until there is a change, we’re left to work within the current system. If you have questions about taxes, call our office for answers.

Let the professionals at Nielsen Law Group help you with all your tax needs. Call (480) 888-7111 or submit a web request here. Our team of experienced legal tax professionals is here to help you with your tax related matters.