Text 1. Tax Policies

Date: 2015-10-07; view: 400.

DISCUSSION: Discussing the budget for the next year

Possible characters:

1. A person who presents the budget for a discussion.

2. Leaders of different political parties.

3. Ministers (of internal affairs, of defense, of education etc).

4. The president of the Central Bank.

5.Governors from different regions.

UNIT 7: TAXATION

So far, we have been concerned mainly with the spending side of the budget, for which appropriations must be enacted each year. The revenue side of the budget is provided by overall tax policy, which is designed to provide a continuous flow of income without annual legislation. On occasion, however, tax policy is significantly changed to accomplish one or more of several objectives:

to adjust overall revenue to meet budget outlays to make the tax burden more equitable for taxpayers;

to help control the economy by raising taxes (thus decreasing aggregate demand) or by lowering taxes (thus increasing demand).

The Reagan administration engineered a significant change in the nation's tax policies. In the first three years, personal income taxes were lowered by 23 percent, resulting in a total revenue loss of $500 billion dollars over the next five years. According to supply-side economic theory, that massive tax cut should have stimulated the economy and yielded even more revenue than was lost—if not in the first year, then soon afterward. It didn't happen. Revenues lagged badly behind spending, and the deficit grew.

Still, Reagan would not agree to raise taxes, and few politicians dared mention a tax hike. Democratic presidential candidate Walter Mondale tried it in the 1984 election and was beaten badly. The Democratic leadership in Congress and many leading Republicans believed that taxes must be raised to cut the deficit, but no one was willing to propose an increase. Reagan went further. He urged Congress to enact sweeping tax reform that would (1) lower still further the rate for those in the highest income tax bracket, (2) reduce the number of tax brackets, (3) eliminate virtually all the tax loopholes through which many wealthy people avoided paying taxes, and (4) be revenue neutral, in the sense that it would bring in no more and no less revenue than the existing tax policy.