Income Tax Increases Will Be A Drag On The Economy | Finance ...

Our federal spending woes will end up making tax increases inevitable. We?re far too far into debt to grow our way out of the difficulty. Furthermore, our budget deficit is actually too large for spending cuts alone to solve the issue. The day we have to finally deal with the problem is arriving more quickly than anyone had imagined prior to the financial meltdown.

Simply put, higher income taxes are a headwind for the economy. They take money away from investors, savers, and businesses and put it in the hands of government. We know through history that government authorities tend to be lousy allocators of investment capital. The federal government functions at a much lower level of output in comparison to the business sector.

Government expenses, as opposed to mainstreet businesses, have a flat to damaging monetary impact on the overall economy. In comparison, the private sector typically has a beneficial multiplier impact on our country?s economy. That is, every new dollar spent by companies and investors will improve growth in the economy. Federal expenditures, on the other hand, strain money out of the economy.

Tax raises normally follow banking crises. This is because a financial catastrophe results in bailouts of numerous companies. Government authorities tend to borrow a major portion of these funds, therefore raising the budget deficit. In addition to bailouts, federal expenditures also rise from fiscal stimulus programs. It is because a deep recession almost always comes after a financial catastrophe. In addition, tax earnings drop right after a financial meltdown because individuals and companies are generating less cash; hence, from everyone having less taxable profits. This is why financial meltdowns create a downward spiral.

In the long run, budget shortfalls have to be resolved. Government authorities try to resolve spending problems through inflating the money supply, decreased spending, and income tax hikes. Income tax increases often go wrong since they result in reduced economic development or could possibly cause yet another economic downturn. The result of a tax hike is even lower profits regarding businesses and less income for individuals. As a result, the intended tax increases may generate less income tax money for the government. In common situations, this only helps make the dilemma worse.

Eileen E Jacobs is an accountant from Las Vegas, NV. income taxes Las Vegas

Source: http://financethatauto.com/2012/02/05/income-tax-increases-will-be-a-drag-on-the-economy/

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