Benefits Of Low Taxes
Low taxes or tax cutting is every political party’s struggle. We are going to share some benefits and theories that go along as well, highlighting that it is not that easy as everybody assumes. Follow us.
For some people cutting taxes or lowering them is a way to promote tax equity. In reality, this is something that is not so simple. When we talk about tax equity, we are made to remember that there are two types of tax equity.
- Horizontal equity
- Vertical Equity
Horizontal equity is basically an idea that states that every individual should be taxed equally. For instance, sales tax is what everyone is going to pay since it is a percentage of the total value of the product purchased. In that case, the tax rate is going to be the same regardless of you spending $1 or $1000. Vertical equity on the other hand is based on the principle that those who are able to pay more should pay more. An example of vertical equity is federal individual income tax. It is a progressive tax, meaning that as the income rises, the tax on it rises as well.
Reduction in taxes also has to do with emotional reactions as well. The reason behind is that the people who pay more are also the ones who benefit the most. An example to understand is that if you happen to cut sales tax by 1%, a person buying a Honda will save around $200 as compared to a Mercedes buyer who is saving $1000. Even though the percentage maybe the same but in dollar terms, the Mercedes owner is better off. Similarly, if you happen to reduce taxes by 25% on a family that has a gross adjusted income of $60,000 is going to save them close to $2,042. On the other hand, if you happen to give a much smaller cut of let’s say 10% to a family with taxable income of $150,000, they are going to end up saving $3,333. In conclusion and in dollar terms, tax cuts will benefit high earners more simply because they earn more.
Lower Taxes Will Increase Investment
It is often argued that lower taxes is going to bring in more investment. Corporations will be provoked to bring in their investments, which will ultimately increase employment. If the taxes are lower, it is believed that more people will join the labor force and work longer.
Lesser Tax, More Government Revenue
Another theory that is presented is that cutting taxes is going to increase government revenue. The reason being that if the taxes happen to be high, people would not be motivated to work and would try dodging taxes. Therefore, if taxes are reduced, it can motivate people to work harder, which in turn is going to bring in more revenue to the government.
Lowering taxes is going to make people spend more. If income tax is reduced, people will work harder and if corporate taxes are lowered, businesses will be encouraged to produce more products and also offer more services. It will give businesses every reason to invest and expand their production as fast as possible.