What produces high GDP & low Unemployment? Income Tax Rate Theory What produces high GDP & low Unemployment?

Purpose/Goals of an INCOME TAX Progressive Income Tax Purpose/Goals of an INCOME TAX

What creates Economic Growth? GDP GDP GDP

The Laffer Curve Illustrates the amount of revenue Government collects as tax rates ↑ Potential Impact: An ↑ tax rate can lead to tax revenues ↓ GDP GDP GDP

Falling tax rates did not lead to Less taxes being paid

President-elect Obama’s Challenge AD1 Price Level Real GDP AS1

Taxing the “Wealthy” Cost/Benefit Analysis

Tax Rates & Economic Growth Higher GDP leads to more tax revenue What is the optimal income tax rate? Raises enough revenue & promotes economic growth AD1 Price Level Real GDP AS1 GDP ↑ Tax Revenue ↑ GDP 23

A Critical Question What tax cuts have GREATEST affect on GDP? What are the true goals of tax cuts? 1) Stimulate Economy? 2) Redistribute Income?

What if Tax Rates are too high? Higher GDP generally leads to more tax revenue However, extremely high taxes will likely lower tax revenue & GDP When are taxes too high? GDP GDP ↓ Tax Rates increase too much Tax Revenue ↓ 23

Criticism of EQUAL % tax cuts What best stimulates economic growth?