Essay Assignment Example | Topics and Well Written Essays - 1250 words

Assignment - Essay Example Tax cuts for businesses encourage the company to expand, invest, or stay in the state through enabling the probability of higher profits. In addition, it stimulates new companies to start up and convince other companies to relocate to state that offers these cuts. Tax cuts lead to job creation, via the promotion of greater activities in business. However, local and state taxes are not that huge of a burden on the business and the reduction in profits is small in comparison (Lynch 5). Rates of after-tax profits in industries are also not significantly varied by different states and jurisdictions. Finally, these taxes should not be seen as burdens but as a provider of financial support to public service that act to reduce business costs. Another argument for Business tax cuts has to do with the supply side, which contends that business tax cuts provide incentives for jobs, as well as leading to an increase in investment and savings, which stimulates economic activity (Lynch 7). Lower b usiness taxes could encourage businesses to retain more earnings and, thus, avail more funds for increased investment in business that is vital for growth of state and local economies. Tax cuts for businesses also allow incentives for business investments, via increasing the profitability inherent in the investment and providing funds for firms to invest by allowing firms to retain more of their earnings. However, a counter-argument contends that the positive effects that are inherent in tax cuts on savings and work effort have been greatly exaggerated by the proponents of this argument (Lynch 8). In fact, tax cuts could act as a disincentive for people to work. Additionally, although tax cuts for businesses may result in sizeable gains, in savings, for businesses and individuals, the gains will not lead to a decrease in interest rates or a productive investment increase in particular jurisdictions. The effect of the demand side argument is likely to reduce growth of the economy and a slowdown in employment creation. A third argument for the implementation of business tax cuts by local and state administrations is the demand side argument. This argument contends that business tax cuts stimulate the local and state economies by making an impact on consumer spending (Lynch 9). When business taxes come down, individuals and businesses are left with increased after tax incomes. Some of these after tax increases could be saved while the rest is spent on the purchase of more services and products. Increased spending will have a corresponding effect on business volumes of sales and allow firms to produce more products and services. As the companies produce more of these, they will have to hire extra workers. Therefore, employment numbers are increased by business tax cuts. Conversely, while local and state tax cuts can cause businesses to use more of their earnings on investment, they also lead to a reduction in government revenue that leads to reduced spending for l ocal and state governments (Lynch 9). Probably, this will result in the drop for in-state spending. Additionally, this very same theory can be utilized for justification in the increase of local and state taxes. The business climate argument holds that local and state governments can promote the development of the economy by improving on the business climate