What are the advantages of reducing the income tax rates of lower income families to the economy?
Reducing income tax rates helps in reducing the poverty among lower income families with children. This is achieved through the tax credits received by these families which in most cases exceed the federal tax charged thereby giving the family a profit. According to the article for instance, a family with two children below 17 years and making $50,000 is expected to have a federal income tax of $2,769. The couple receives a pay credit of $800 and the children will receive child tax credits of $1,000 each which amounts to $2,800 thus exceeding the federal tax by $31 which is a federal income tax profit to the family.
How will the government recover the money paid out to taxpayers who do not pay income tax and actually receive (refunds) payments?
The government ensures that it recovers the money paid as credit to taxpayers who do not pay income tax by having them pay other taxes like the federal payroll taxes and the state or local taxes charged on sales, income and property. This helps the government to keep a balance between the deductions and credit, and the federal income tax that is the largest source of government’s revenue.
How will the reduced taxes affect business?
High rates put pressure on the taxpayer who opts to withdraw his equity from any productive business. With reduced taxes however, the taxpayer increase their taxable income by working and investing more. Reduced taxes therefore will promote sprouting and growth of businesses.
Who will pay more taxes and will this make up for the reduction?
The top 10% of earners who for instance in 2006 paid about 73% of the income taxes that were collected by the government. These percentages of taxpayers will make up for the reduction which will also be supplemented by other taxes charged on sales and federal payroll taxes.
