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

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

3. What creates Economic Growth?
GDP
GDP
GDP

4. 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

5. Falling tax rates did not lead to
Less taxes being paid

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

7. Taxing the “Wealthy”
Cost/Benefit Analysis

8. 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

9. 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?

10. 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

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