Question

A new president has been elected. she promises to lower taxes drastically. what is most likely to happen as a result of this decrease in taxes? a. the number of services provided by the government will increase. b. government programs will be cut or reduced. c. citizens will be sad that they don’t get to pay higher taxes. d. an antitrust suit will be filed against the president for his plan.

Answer 1

b. government programs will be cut or reduced.

How does a decrease in taxes affect the economy?

Reductions in income tax rates affect the behavior of individuals and businesses through both income and substitution effects.

The positive effects of tax rate cuts on the size of the economy arise because lower tax rates raise the after-tax reward to working, saving, and investing.

What does a decrease in taxes increase?

A decrease in a tax system's progressivity is associated with an increase in the real growth rate of wages. Changes in rates of private investment and private consumption are highly correlated with tax changes.

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