What Are the Benefits of Lowering Taxes?

by Michael Wolfe - Updated September 26, 2017

One political issue that plays some role in nearly every U.S. election is the tax rate. The collection of taxes allows the government to provide a number of services critical to society. However, too high a tax rate can stifle growth and give the government too much control over how money is used. Lowering taxes can, in the right situation, have a number of benefits.

Features

Most taxes are imposed as a fee of a particular transaction, usually calculated in the form of percentage. For example, the income tax that U.S. residents are required to pay is calculated in terms of a percentage of their total income. A person earning $50,000 who must pay an income tax of 20 percent would be required to pay $10,000. When taxes are lowered, this percentage is reduced.

Types

When a person speaks of lowering taxes, he may be referring to taxes in general or a specific tax in particular. Most U.S. residents pay a number of taxes, all levied by a government authority, such as a city, a state or the federal government. Each authority is responsible for assessing its own taxes, which are written into the law. Only by changing the law can taxes be lowered.

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Benefits

Lowering taxes can have a number of benefits. If consumers are able to pay less for products due to a lowering of the sales tax, they will be encouraged to spend more money. If income taxes are lowered, people may be encouraged to work harder, thereby increasing productivity. And, if corporate tax rates are lowered, businesses may be encouraged to produce more products and offer more services.

Theories

Although many argue that one of the downsides of lowering taxes is that the government receives less revenues, thereby reducing its ability to provide services, one school of thought argues that lowering taxes can in some cases boost revenue. According to economists who believe in supply-side economists, the lowering of certain taxes, such as income and capital gains taxes, is the best way to promote economic growth. In fact, these theorists believe that, in some cases, lowering taxes can actually boost government revenues, as the economy grows enough to offset the lower tax rate.

Considerations

Whether an effect of lowering a tax can be considered a benefit often hinges on a person's political philosophy. For example, while some many view the federal government receiving less money as a benefit, others may see it as a drawback, as it restricts the services it can provide to people.

About the Author

Michael Wolfe has been writing and editing since 2005, with a background including both business and creative writing. He has worked as a reporter for a community newspaper in New York City and a federal policy newsletter in Washington, D.C. Wolfe holds a B.A. in art history and is a resident of Brooklyn, N.Y.

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