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Exploring Tax Cuts, Jobs, and Tax Revenue
There has been discussion about whether the Tax Cuts and Jobs Act that took effect in 2018 will increase tax revenue. Tax revenue can be thought of an as average tax rate multiplied by taxable income. If the average tax rate falls while taxable income stays the same, tax revenue will fall. But what if the tax cuts increase taxable income? Both of the major schools of thought in macroeconomics (Keynesians and Neoclassicals) believe that tax cuts increase economic growth. Economic growth increases taxable income. Our recent economic growth has brought unemployment down to historically low levels.
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