Macroeconomics
Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 19.3, Problem 2ST
To determine

Reasons for the interest of political candidates to speak in general terms.

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In 1989, Senator Bob Packwood asked Congress’s Joint Committee on Taxation how much extra revenue the government would raise if it just started taxing 100% of all income over $200,000 per year. The Joint Committee crunched some numbers and reported an answer: $204 billion per year.     a. What is wrong with this answer? In 1989, very few people made over $200,000 a year, so the estimate of the tax revenue is far too high. Increasing government spending by $204 billion each year would have generated economic growth, and subsequently even higher amounts of tax revenues. The Joint Committee on Taxation did not have the tools needed to make such an estimate accurately. No one would have an incentive to work once they had earned $200,000, so much of the taxable income would disappear.
Your Finance Minister considers making a tax reform. He asks you, as a senior tax administrator, to advise him on the requirements from a good tax system. What would you advise him?
PLEASE HELP ASAP!!! WILL GIVE THUMBS UP!
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