Public Sector Economics Essay

In describing the economic advantages and disadvantages of the proposed tax policy change the advantage is that revenues increase substantially from $9,134 billion to $184,807 billion. From a macroeconomic viewpoint, the more money in circulation, the more money the firms will receive. With a greater amount of funds in circulation the more that workers will have in their net income. This concept stimulates the economy as a hole in a revenue approach and cash in circulation. On the contrary, the disadvantage is that the proposed tax rate was increased by 0. 03 percent, the Finance sector was taxed and no one was zero rated besides Agriculture. In viewing the current law of products; the advantage is that the tax rate is slightly lower at 0. 07 percent and all products were exempted from taxes, and zero rated thus receiving money back in terms of a credit. Despite the low revenue there the current tax policy tends to be more efficient. Considering that there are no taxes and credits are being received in terms or revenues. Focusing on the Proposed Law, this would be bias and favorable to the federal government. The federal tax system relies on a number of different types of taxes to generate revenues. Therefore raising the tax rate 0. 03 percent to 0. 10 the federal government is able to have more in revenues. In discussing the Current Tax Law, this would be more favorable to the consumers because of the lower tax rate. As consumers we want to pay less in taxes; lower taxes in turn pushes out the overall demand curve as we demand more goods and services with higher disposable incomes. Supply side tax cuts are aimed to stimulate capital. If successful, the cuts will shift both aggregate supply and demand because the price level for a supply of goods will be reduced, then it leads to an increase in demand for those goods. To label this table horizontal or vertical equity, we would say that the table would be more supportive to vertical equity dependent on proposed or current law. By definition vertical equity, â€Å"is a method of collecting income tax in which the taxes paid increase with the amount of earned income. The driving principle behind vertical equity is the notion that those who are more able to pay taxes should contribute more than those who are not. † In reviewing the table we would agree that the Proposed Law would match well with the vertical approach and horizontal equity would be the explanation of the Current Law system, because there are more zero rated products that offer credits.