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Taxation
An aspect of fiscal policy
Policies Government revenue Tax revenue Non-tax revenue Tax law Tax bracket Tax threshold Exemption Credit Deduction Tax shift Tax cut Tax holiday Tax advantage Tax incentive Tax reform Tax harmonization Tax competition Double taxation Representation Unions Medical savings account Tax, tariff and trade
Economics General Theory Price effect Excess burden Tax incidence Laffer curve Optimal tax Theory Optimal capital income taxation Distribution of Tax Tax rate Flat Progressive Regressive Proportional
Collection Revenue service Revenue stamp Tax assessment Taxable income Tax lien Tax refund Tax shield Tax residence Tax preparation Tax investigation Tax shelter Private tax collection Tax farming
Noncompliance General Tax avoidance Tax evasion Tax resistance Tax shelter Smuggling Black market Unreported employment Corporate Tax inversion Transfer mispricing Base erosion and profit shifting (BEPS) Double Irish Dutch Sandwich Single Malt Irish Green Jersey Locations Tax havens Corporate tax havens Offshore financial centres (OFCs) Offshore magic circle Conduit and Sink OFCs Financial centres Financial Secrecy Index Major examples Apple €13 billion EU fine Luxembourg Leaks Leprechaun economics Paradise Papers Panama Papers Ireland as a tax haven United States as a tax haven Panama as a tax haven
Types Direct Indirect Per unit Ad valorem In rem Capital gains Carbon Consumption Dividend Ecotax Excise Fuel Georgist Gift Gross receipts Income Inheritance (estate) Land value Payroll Pigovian Property Sales Sin Single Stamp Steering Turnover Value-added (VAT) Corporate profit Excess profits Windfall profits Negative (income) Wealth
International Financial transaction tax Currency transaction tax European Union Common Consolidated Corporate Tax Base (CCCTB) Tobin tax Spahn tax Tax equalization Tax treaty Permanent establishment Transfer pricing European Union FTT Foreign revenue rule
Trade Custom Duty Tariff Import Export Tariff war Free trade Free trade zone Trade agreement ATA Carnet
Research Academic Mihir A. Desai Dhammika Dharmapala James R. Hines Jr. Ronen Palan Joel Slemrod Gabriel Zucman Advocacy Groups Tax Justice Network (TJN) Institute on Taxation and Economic Policy (ITEP) Oxfam (UK) Tax Foundation (US) Tax Policy Center (US)
Religious Church tax Eight per thousand Teind Tithe Fiscus Judaicus Leibzoll Temple tax Tolerance tax Jizya Kharaj Khums Nisab Zakat
By country All Countries List of countries by tax rates Tax revenues as % of GDP Tax rates in Europe Individual Countries Albania Algeria Argentina Australia Azerbaijan Bangladesh Bhutan Brazil Bulgaria BVI Canada China Colombia Croatia Denmark Finland France Germany Greece Hong Kong Iceland India Indonesia Iran Ireland Israel Italy Japan Kazakhstan Lithuania Malta Namibia Netherlands New Zealand Norway Pakistan Palestine Peru Philippines Poland Russia Singapore South Africa Sweden Switzerland Taiwan Tanzania United Kingdom United States Uruguay
v t e

A tax cut is a reduction in the rate of tax charged by a government. The immediate effects of a tax cut are a decrease in the real income of the government and an increase in the real income of those whose tax rates have been lowered. Due to the perceived benefit in growing real incomes among tax payers, politicians have sought to claim their proposed tax credits as tax cuts. In the longer term, however, the macroeconomic effects of a tax cut are generally not predictable because they depend on how the taxpayers use their additional income and how the government adjusts to its reduced income.

Depending on the original tax rate, tax cuts may provide individuals and corporations with an incentive investments which stimulate economic activity. Some politically conservative opinion-makers, such as Art Laffer, have theorized that this could generate so much additional taxable income that a lower tax can generate more revenue than was collected at the higher rate. However, basic math states that cutting tax rates in half would require an economy twice the size to generate the same amount of tax revenue.^{[citation needed]}

This claim has been contested by many think tanks and academics who have published work to disprove the Laffer Curve. ^{[1][2][3][4][5]}

Tax cuts in the United States

A significant individual tax cut was proposed by President John F. Kennedy and signed into law by President Lyndon B. Johnson with the belief that cutting tax rates would stimulate investment and spending, with overall beneficial effects (including replenishment of some lost tax revenues).^[6] However, in recent decades, the majority of politicians favoring large tax cuts have been members of the Republican Party.

President Ronald Reagan signed tax cuts into law, which some believe stimulated a doubling in total tax revenues, (from five hundred billion to one trillion dollars) during the period from 1980 to 1990.^[7] However, during this period the deficit and national debt more than tripled (from $908 billion in 1980 to $3.2 trillion in 1990) because government spending rose even faster than increases in tax revenue. As a result, income tax receipts as a percent of GDP fell from 11.3% in 1981 to 9.3% in 1984 and did not to revert to original levels until the late 1990s, even though overall revenue skyrocketed in terms of real dollars.

Some supply-siders like Don Lambro of The Washington Times credit the Reagan tax cuts with the eventual surpluses of the late 1990s.^[8] Others doubt this claim however, and instead believe the surpluses were a result of a combination of a decrease in government spending, the passing of the Omnibus Budget Reconciliation Act of 1993 (which dictated several tax increases), and the use of the PAYGO (pay-as-you-go) system. The Center on Budget and Policy Priorities and President’s Council of Economic Advisers argue that tax cuts do not pay for themselves stating that the

"large reductions in income tax rates in 1981 were followed by abnormally slow growth in income tax receipts".^[9]

President George W. Bush signed two major tax cuts into law; one in 2001 and one in 2003. These are often collectively referred to as the "Bush Tax Cuts".^[6] The conservative think tank The Heritage Foundation has claimed that the Bush tax cuts have led to the rich shouldering more of the income tax burden and the poor shouldering less;^[10] while the Center on Budget and Policy Priorities states that the tax cuts have conferred the "largest benefits, by far on the highest income households."^[11]

Bush has been criticized for giving tax cuts to the rich and capital gains tax breaks, but some benefit extended to middle and lower income brackets as well.^[12] Bush has claimed that the tax cuts have paid for themselves but the Center on Budget and Policy Priorities argues that this is false.^[13]

At the state level, former Democratic Governor Bill Richardson in recent years has supported tax cuts to spur economic growth.^[14]

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In December 2017, the Senate passed the Tax Cuts and Jobs Act of 2017.^[15]

Capital gains

Much discussion has occurred regarding the optimum capital gains tax rate, with some calling for reductions in the belief that a lower rate will provide investors an incentive to invest in new stocks—which supply siders claim encourages the creation of new jobs, reduces unemployment, and has the paradoxical effect of increasing tax revenue.

See also

• Laffer curve


• Rahn curve


• Reaganomics


• Starve the beast


• Trickle-down economics


• S corporation


• Tax reform

Notes

External links

• Congressional Research Service (CRS) Reports regarding U.S. tax cuts


• Advice for exchange students in the U.S. (J1 and F visas) on how to legally cut some taxes


• Cato Policy Analysis No. 242: The ABCs of the Capital Gains Tax


• Larry Kudlow on the Bush 2003 Tax Cuts and the U.S. Private Business Boom