If the unemployment rate can be reduced by cutting taxes, why don't we cut taxes to...
If the unemployment rate can be reduced by cutting taxes, why don't we cut taxes to zero, at least during periods of recession? As part of this answer, describe at least one potential unintended consequence of cutting taxes to zero.
Homework Answers
Tax is a revenue income of government. If it reduced to zero, such income decreases. On the other hand the government has to spend more during the period of recession – more spending requires for increasing money supply in the economy which pulls down the recession. Therefore, the government has to spend at a time when they have zero tax revenue (out of zero income); in this case loan has to be taken which increases budget deficit of the government.
This is not at all growth oriented. A part of GDP is government spending; if there is income, such spending would be smoother; this may not be possible at zero tax rates, since the government may not be wanted to take loan for spending purpose because of interest burden. Therefore, this hampers the growth as well.
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