Final Paper

Taxes are a necessary part of life. While they give most of us headaches and drain our monetary resources, we also enjoy many of the benefits of taxation. The money collected from taxes is used for many different functions. Everything from maintaining our roads and public buildings to the funding of our law enforcement, emergency services, and health care systems come from taxes. The distribution of taxes as well as the collection of them causes many arguments and different points of view. In this paper we will discuss some of the questions raised about taxation.
What happens to net personal income when the government raises taxes?
When the government raises taxes and your gross income stays the same then usually your net personal income will decrease. As net personal income decreases then so does disposable income. This means people spend less and decreases the income of businesses they buy goods and services from, which can lead to a decrease in total tax revenue.
When the government lowers taxes?
When the government lowers taxes people feel more comfortable about spending their money. This is because they know that their dollars will go farther and buy more goods and services than before the tax cut. Lower taxes along with controlled government spending has an immediate and positive effect on the economy. People spending more money will stimulate the economy and create more jobs. So, when the government lowers taxes it has a positive effect on personal income and encourages spending.
How is the GDP affected by higher taxes and lower taxes?
In general, when the government brings in more in taxes than it spends, it reduces disposable income and slows the growth of the economy. So, the fiscal policy prescription to stabilize an overheated economy is higher taxes.
In times of inflation—when too much demand is bidding up prices—a tax increase, coupled with no increase in government spending, will dampen the upward pressure on prices. The tax increase...