Tax rates in the United States are relatively higher. Higher taxes lead to reduce the consumption of goods and services. Consumption is a component of aggregate demand.
Aggregate demand falls due to decline in the consumption expenditure. Thus, federal government should continue cutting taxes.
Higher payroll taxes affect the willingness to work in the United States. People have to sacrifice larger portion of their income due to higher taxes. Reduction in the taxes is beneficial to stimulate the economic growth.
(a) The progressive tax system serves the vertical utility concept. In terms of progressive tax system, the average tax rate increases as income increases. Vertical utility concept reflects that the people should be taxed according to their level of income.
Higher taxes are imposed on the higher income group people and relatively lower taxes are imposed on the lower income group people.
(b) The excise taxes on cigarette serves the concept of horizontal equity. The people who consume cigarette are supposed to pay taxes on it. Higher taxes are included in the price cigarette. Thus, there is no income discrimination while imposing taxes on cigarette.
(c) The gasoline tax serves the concept of horizontal equity. All the people who use gasoline are supposed to pay taxes. Income level of consumers is not considered while determining the tax rate.
Critics have argued that reduction in taxes were regressive because the proportionate gains to poor people were small. Rich people have benefited more from the tax cuts.
Reduction in taxes were excessive in magnitude because it has reduced the distributional befits to poor. Normally, taxes are used to redistribute the income from rich to poor.
One would agree with the critics because tax cuts lead to reduce the government revenue. Reduction in the government might affect the public services which are usually provided to middle-class and poor people.