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How Tax Cuts Help Revive the Economy

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How Tax Cuts Help Revive The Economy

Introduction
How can tax cuts help revive a poor economy? Many economists that are in favor of tax cuts argue that by reducing taxes, we can improve the economy by increasing spending. However, there are people who oppose them and say that tax cuts only help the rich because it can lead to a reduction in government services upon which lower income people rely on. No matter which side you agree with, they both have they’re pro’s and con’s depending on the current state of the economy. Understanding our countries Federal tax system and how they can implement certain tax cuts is important as it directly impacts the GNP. Since we are currently in one of the worst recessions, we must consider if tax cuts will help revive our economy.

The Federal Tax System
Our Federal tax system relies on a number of different types of taxes to generate revenues. The largest source of funds is the personal Federal income tax. Personal income taxes are levied against income, interest, dividends and capital gains, with higher earners generally paying higher tax rates. Another source of funds are payroll taxes. The payroll tax is a tax levied at a fixed percentage on salaries and wages, up to a certain limit and is paid equally by both the employer and employee. Payroll taxes have become an important source of revenue for the Federal Government and have grown more rapidly than income taxes as the government has raised rates and income limits. Payroll taxes are otherwise known as The Federal Insurance Contributions Act, or FICA taxes, which is used to pay Social Security benefits, Medicare and unemployment benefits.
Gross National Product
Our countries wealth is measured by the Gross national product (GNP), which is also directly affected by federal taxes. An easy way to understand how taxes affect output is by using the aggregate demand

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