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How Can Tax Cuts Help Revive the Economy

Essay by   •  February 11, 2012  •  Essay  •  462 Words (2 Pages)  •  1,450 Views

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How can tax cuts help revive the economy

The tax cuts can help revive the economy simply because the people will pay less tax dollars, which in turn means that the consumer will have more money to spend. When people start spending more money, the economy will start circulating the money. This cycle will ultimately have a snowball effect, which will eventually revive the economic recession.

Another reason why the government gives incentive for tax deductions is to simply have the big businesses to buy more helpful products for their employees, which will have the government spend more money on healthcare and other expenses. The government also gives incentives to sole proprietors and families by giving them a tax deduction for IRAs up to $5000. This helps the families at least have a start in their savings account and not only rely on social security. This will ultimately help revive the economy when the people start possessing more money in the future. The baby-boomer generation will retire in the next 20 years, and this generation possesses about 75% of the money in the economy, which means that they need to start spending in order to help circulate the money around the economy.

The irony in tax cuts is that it actually helps the economy. The people generate the power to spend and spend, especially in this consumer world. When people start becoming more conservative and spending less and the banks are being more restrictive in lending money, the economy slows down. During the great depression, jobs were scarce because people did not have the money to spend. Ultimately, when the money is being used around and around, the economy is doing well. During the recession, the banks gave out loans to people so liberally, that eventually it backfired when the homeowners could not actually afford the mortgage. Economy was booming when people were crediting and weren't thinking about saving, which ultimately led to the recession. They were basically spending money that they didn't have, which dug them into a giant whole that they couldn't dig out of.

The tax brackets determine the amount of money that will generate between each economic class. When there are tax cuts, it really doesn't matter what economic class you are in, you basically have more money to either save or spend. When people can start consuming more and more, the money starts to circulate, which also creates more job opportunities for people. When there is a need or a demand, the supply will have to be pushed to satisfy this need or demand. Tax cuts will help this situation and also ultimately help the recession come to an end.

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