Why doesn't the Goverment realise that if it reduces Taxes, it will actually get more money ?

Question

So it is not true then, that when workers have more cash in their pay packets, they spend more thus revitalising the economy. I thought that that was in evidence in the U.S today?

Answer 1

Good old Reagomics!

Cut taxes, especially at the top end,
then the super rich will have the incentive to work harder to make more $ rather than pay to the government,
and they do that by investing,
thus creating jobs to more people,
these people pay taxes,
in sum more people work and tax revenues go up too!

And where did that lend the US?
HUGE budget deficits that Clinton tried to plug.

Governments don't cut taxes because they know it doesn't work as you theoretically think.

Tax breaks to fat cats encourages them to make more money sometimes, but they'd rather invest overseas rather than domestically, so in fact the tax breaks do not decrease local unemployment, but overseas unemployment, so the domestic economy loses.

Many people are salaried, cutting income taxes means straight loss of government revenue.

People care about their actual wage, but also their comparative wage. If income taxes are cut, companies can pay people less in total, but the workers take home the same amount after tax. So theoretically labour costs to companies fall. But workers don't readily take wage cuts. New workers would compare their wages with current ones. So companies do not offer lower wages. These are rigities in the labour market.

The costs of administering taxes do not fall as tax rates fall.

Cutting indirect taxes does little to encourage spending. Say the VAT is cut, does that mean you'd eat more, or spend more? Not necessarily. The effects of tax increases and decreases are not exact opposites, it's like a ratchet effect.

In sum, real life market rigidities, the fact that we are in open economies where capital flows easily and where returns can be higher overseas, all these mean that cutting tax rates need not increase tax revenues, on the contrary.

Answer 2

Governments, especially ones run by liberals like the Democrats have become, are not about what makes sense, they are about gathering and keeping Power. That's it. With the five-second foresight most politiciots have, they see lowering taxes as a loss of power. They cannot look ahead to the increased revenues which will come later from an improved economy. They are afraid of losing their loot right now, right now, right now.
I am not a fan of the Democrats, but I am so very disappointed in the Republicans also. We voted them in to reduce government meddling, lower taxes and other such stuff, and ended up with more of the same. Now with the vote AGAINST the Republicans (it was NOT a vote FOR Democrats, which is what the Democrats who are now gloating about a supposed "mandate" will discover to their dismay), many of the Republicans are acting like Democrats to the point where they are now "Republicrats". I supposed there may be some "Demicans" out there somewhere. Either way, we end up with higher taxes and less freedom.

Answer 3

That's true to a point.

The extremes are obviously a tax rate of 0%, where the government will collect no money, and a tax rate of 100%, where the government will collect no money (unless you are in a state-run economy where you're forced to work).

Between these two extremes exists the Laffler curve. If you're on the right side of the max, reducing taxes WILL increase government revenue. If you're on the left side, it will reduce government revenues.

Answer 4

They can't - Gordon Brown has borrowed so much to fill the hole in his figures that they could not reduce taxes - in fact, Labour are trying to come up with new ideas to raise taxes even further by way of stealth - one example - if you live in a quiet street or overlook a wooded area, you will have a council tax increase just because you live in a 'nice' area. Another one - over the next few years - you will be obliged to allow inspectors into your homes to check for fuel efficiency and insulation - if you don't let them in to inspect - the fine is £500 (another stealth tax) -

Gordon Brown (even by the Commision investigating's admission) has plunged this country in debt totalling BILLIONS of £'s

Answer 5

Because the government dont have a clue hoe to run a country and they cant manage projects that they start and never finish or go over budget. People who get into government usally have connections or money. Thus people who prob would know how to run a country dont get a chance

Answer 6

in short, ignorance and arrogance

Answer 7

because it is all about politics

Answer 8

'Cos they are money grabbing bas88rds!