Fiscal policy uses public spending levels and tax rates to influence the economy. used by policy makers fiscal policy Finding a level of public spending that will stimulate economic demand without creating an excessive tax burden for citizens and businesses.

“Reaganomics”

Ronald Reagan promoted economic growth “by reducing tax levels through policies based onsupply side” or “drip“economy, dubbed”ReaganomicsReaganomics argued that by reducing taxes, high-income taxpayers would spend more and invest in businesses, which would spur economic expansion and job growth. Reagan integrated the economic theories of Arthur Laffer, who summarized the hypothesis in a graph known as “”.Laffer CurveCongress passed a 25 percent across-the-board rate cut in late 1981 and indexed rates for inflation in 1985.

Initially, inflation flared up again and Federal Reserve increased interest rates. why did this happen recession This took about two years. But once inflation was brought under control, the economy grew and 16.5 million jobs were created during Reagan’s two terms. But the national debt increased. During gross domestic product (GDP) increased by approximately 34% during Reagan’s presidency, it is impossible to determine how much of this growth was due to tax cuts. deficit spending.

Clinton Years

Under President Bill Clinton, the Omnibus Budget Reconciliation Act was passed in 1993 and included a series of tax increases. rose to the top income tax The rate is increased to 36%, while the highest earners are charged a 10% surcharge.

Removed the income limit Medicare taxes were phased out itemized cuts and exemptions increased the taxable amount Social SecurityIt also increased the corporate rate to 35 percent.Approximately 18.6 million jobs were added to the economy during Clinton’s presidency. The stock market is on its way bull run as S&P 500 index increased by 210%.

In 1997, unemployment fell to 5.3%, and Republicans surpassed that rate. Taxpayer Relief Act. This law reduced the top capital gains rate from 28% to 20% and established a $500 increase. child tax creditexempted a married couple from taxes on $500,000 capital gains increased the decision on the sale of the primary residence and property tax Exemption from $600,000 to $1 million. also created Roth IRAs And education IRAs and increased income limits for deductible IRAs.

Policy Under President Obama

President Barack Obama has consistently pushed for higher taxes to help the wealthy. reduce the deficit. He also fought for and passed significant tax cuts for working families and small businesses. For the typical middle-class family, tax deductions totaled $3,600 in the first four years.

Although President Obama has targeted new opportunities for savings like the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC) for working families, and the American Opportunity Tax Credit (AOTC) for college tuition, nearly 24 million working and middle-aged With an annual tax cut of about $1,000 to middle-class families, the national budget deficit rose from $7.5 trillion in 2009 to $14.1 trillion in 2016 during his eight-year term.

Trump’s Tax Cuts and Jobs Act

President Trump signed Tax Cuts and Jobs Act (TCJA) It became law on December 22, 2017, with significant changes to the tax code. The law reduced marginal effective tax rates on new investments and reduced rate differences between asset types, financing methods, and organizational forms.

The TCJA included $5.5 trillion in gross tax cuts, about 60% of which went to families. The economy grew faster after 2017 than anticipated before the TCJA, but research shows this significantly reduced federal revenue compared to what would have been achieved without the TCJA. However, in the third quarter of 2020, real GDP grew by 33.1% on an annual basis, doubling the record set seventy years ago.

President Biden’s Recommendations

President Biden’s Fiscal Year 2024 Budget includes tax increases that will target businesses and high-income individuals and total $4.8 trillion. The budget would reduce economic output by about 1.3% over the long term and eliminate 335,000 full-time jobs, according to the Tax Foundation. But the Office of Management and Budget (OMB) estimates the Fiscal Year 2024 budget will reduce costs debt to GDP ratio by seven percentage points.

In conclusion

Economists and policymakers debate whether higher rates would lead to increased tax revenues. Fiscal policy attempts to strike a balance between public spending levels and tax rates to influence the economy. tax-GDP ratio. Policymakers must weigh their weight in a constant balancing act. new taxes against losses that society may face because of these taxes. Changes in rates change behavior and taxpayers often focus on minimizing their tax burden.