Do tax cuts increase tax revenues Essay Example | Topics and Well Written Essays - 500 words

Do tax cuts increase tax revenues - Essay Example 1). This measure has led to increased investment and job creation in the American market over the past few years. Cutting taxes may lead to increased or decreased revenue depending on the duration in which the tax cuts are applied. During an economic boom, an increase in taxes leads to increased revenue for a country. A tax increase may, however, harm the economy in the long run as people may feel the burden imposed on them and shy away from doing business in the country as noted by Sowell (2012, p. 7), an economist and senior fellow at the   Hoover Institution Stanford University Stanford, . This implies that increased taxes will increase revenue in the short run but decrease revenue will do so in the long run. For instance, when President Clinton’s administration got rid of trade tariffs on Chinese goods, the American market were flooded with Chinese goods. This led to an increase in business and consequently tax revenues increased. However, taxes paid by Americans increased to a level that many of them got discouraged from risking their money in business. This led to a recession whi ch the American economy suffers to-date. When taxes are low, many people do not feel the tax burden and are, therefore, encouraged to risk their money in business and are encouraged to comply with tax laws (Hungerford 2012). If many people invest in business and earn dividends, they will contribute a lot in revenue to the economy as opposed to if fewer people were involved (Sowell 2012, p.5). With a lower tax burden, people grow richer faster and consequently move to a higher tax brackets which mean increased revenue for the government. Furthermore, when more people invest, many of them grow richer and consequently pay more taxes which translates to more revenue. A specialist in public finance, Hungerford notes that the revenue generated by an economy that has lower tax rates is often much higher than that that generated by higher tax rates (Hungerford 2012, p. 15).