Do tax cuts for the wealthy lead to long-term economic prosperity?

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Presentation transcript:

Do tax cuts for the wealthy lead to long-term economic prosperity?

Background

Supply-Side Economics AKA: Reganomics  Idea that economic growth can be most effectively created by lowering barriers for people to produce goods and services.  This is done by lowering income tax and capital gains tax rates, and by allowing greater flexibility by reducing regulation.  According to supply-side economics, consumers will then benefit from a greater supply of goods and services at lower prices.

Trickle-down Economics  Tax breaks or other economic benefits provided by government to businesses and the wealthy will benefit poorer members of society by improving the economy as a whole

Fast Forward

Bush Tax Cuts  2001 & 2003 Congress passed $1.7 trillion in tax cuts  Legislation reduced income tax, expanded retirement and savings programs & repealed estate tax  Cuts based on projected surpluses (+) but in 2002 gov’t began running deficits (-)  Blamed recession, Iraq/Afghanistan & increases in Medicare

Today  Bush tax cuts were supposed to expire in 2011 but due to fragile state of economy, Obama and Congress reached deal to extend cuts til January 2013  January 2013: deal signed made Bush tax cuts permanent for individuals earning LESS THAN $400,000 annually (couples $450,000)  Also raised tax rates on higher earners from 35% to 39.6%- estimated to bring in $600 billion in revenue over next 10 years

Why does this Matter?  Experts believe inequality among Americans is slowing down economic recovery  Gap between rich and poor grew to widest in more than 40 years in 2011  Among developed nations only Mexico, Turkey and Chile have higher income inequality  Stagnant wages and increasing debt makes in difficult for middle-class citizens to climb economic ladder

The Debate Pro  Tax cuts lead to increase in consumer spending  Tax cuts would allow for freedom to invest $ and take risks necessary for economic growth  Cutting taxes on businesses will give employers extra funds to hire more workers Con  Tax cuts favor richest Americans who do not need tax reduction  Instead of investing $ back, high-income Americans regard tax cut savings as profit  Rich become rich and little effect on economic growth