Free Critical Thinking About The Tax Cut Effect

In an unprecedented recession across the globe in 2008, the United States has been hit very hard with countless job losses, many major business bankruptcies, and nearly total slump in all sectors of the economy. The US government intervened in response to the greatest recession in recent decades with Obama administration proposing 787 billion USD economic stimulus plan (Teslik). One aspect of the economic stimulus plan entailed tax cuts and the present paper explores its effects on economy.
The overall economic stimulus plan was aimed to stimulate economic activity by cutting taxes for businesses to create jobs and individuals to spend more. In its early stages, little impact was noticed with sluggish economic recovery and small or no gains in employment. The focus of Obama administration stimulus package was job creation and increasing spending based reduced taxes for businesses and individuals (Baker and Hulse). Tax deductions were detailed and aimed towards as broad as possible base of businesses and individuals. Out of 787 billion USD in the overall economic stimulus plan (Hossain, Cox, Mcgrath and Weitberg), 480, 533 million USD were allocated to tax cuts (Grabell and Weaver) and Table 1 gives a breakdown of different cuts.
The US economic recovery has been largely attributed to a broad range of factors including the Federal Reserve’s zero interest rate policy. While the tax cuts have been often criticized for being too broad and ineffective, their overall effect on the economy has been positive. Tax cuts had positive influence on US economic recovery.
First, tax cuts are a major factor that not only helped the US economy positively, but also created a sense of the State doing its best to help the economy. Tax cuts, in general, are adopted by sovereign states as an economic policy, particularly during economic slowdowns, in order to incentivize investors and stimulate growth. Research suggests that taxation can be effective in creating economic growth (Engen and Skinner). The situation is not much different in the economic crisis of late 2008 – early 2009. Tax cuts have been introduced into different economic sectors as well as for individuals. Obama's plan has targeted specific sectors and individuals resulting in not only an overall positive economic benefit to many, but it also led to major economic turnarounds and diversifications. The economic turnarounds and diversifications, probably, could not have been possible in absence of a major economic crisis and the response stimulus. Indeed, most of America's economic leaps in the past history have occurred in one major economic crisis or another.
Second, tax cuts enacted constitute a considerable size in overall stimulus amount (Hossain, Cox, Mcgrath and Weitberg). Because the tax cuts are a notable amount in a stimulus plan, the plan has been subject to a lot of criticism. However, the impact on U.S. economy has been more positive than expected. Based on deductions for businesses and individuals, U.S. economy has been able to channel investments from conventional sources of energy such as fossil fuels into renewable resources such as solar energy, wind, and biofuels. It also led to switch from paper-based medical records into electronic ones (Grunwald). Because of tax cuts for businesses, U.S. enterprise ecosystem has witnessed a major turnaround in economic activity as well as market segmentation. By reviewing enacted strategies, U.S. businesses could shift strategies and expand in business in or out of U.S.   In a more subtle way, as economic crisis set in, more Americans opted for independent activities to meet their daily, medium, or long-term needs. As crisis abated, new business models propelled by tax cuts started to emerge, notably shared-economy-based models (Hecker). Thus, out of a deep economic crisis of 2008-2009. new models of personal business for individuals came. As an economic turnaround, it is of no less significance for U.S. economy. By incentivizing businesses and individuals directly, the government led them to more innovative means to change course of an ongoing economic crisis.
Stimulus plans are subject to criticism as providing mixed results (Wolverson). They are credited for short-range results by consumer spending boosts, business incentives as well as job creation via tax cuts and public works projects. Stimulus plans fail to meet long-range promises of sustained economic growth. Further, tax cuts are historically associated with criticism based on economic privileges and benefits granted to upper segments of U.S. society. The facts of tax cuts are viewed as having no or poor effect on economic growth in longer range.  Yet, as noted, longer range effects in vital economic sectors such as energy because of tax cuts are evident in exponential growth of sustainable energy projects and facilities in and out of U.S. The offering of incentives for medical facilities to switch to electronic medical records realized indirect savings on medical costs. Broadening broadband connectivity resulted in enhancement on telecommunication infrastructure across different geographical areas. Thus, tax cuts not only constitute a major factor in U.S. economic recovery, but they also enhanced chain value of activities across U.S. economic sectors.  
On the other hand, tax cuts are also shown have mixed effects. Not all tax cuts lead to bigger economic activities. Furthermore, practice has shown that tax change policies achieve longer range economic goals by proposing economic boost rather than windfall support which are regarded as only short range and unsustainable. Most significantly, a tax change structure and financing model are fundamental in effecting economic growth (Gale and Samwick). Obama's tax policies helped contain negative economic effects and in the end are shown to be positive not only for incentivized sectors but also for economy overall. Nonetheless, when initially proposed, most viewed it as waste of public funds.
In conclusion, against a background of deep economic crisis and an unprecedented economic recession, Obama administration proposed a stimulus package in 2009 to boost economic recovery. Obama's stimulus plan was aimed at creating jobs and encouraging consumption. Given the economic recovery and growth later, tax cuts proved to be a significant factor in not only lifting U.S. economy from a deep recession but also creating new opportunities in vital sectors. The stimulus plan created opportunities in sectors long avoided either for economic or political reasons. Overall, the tax cuts in 2008-2009, had positive economic impact. However, tax changes are not uniform in their economic impact. Therefore, further research is needed on impact of tax cuts for specific sectors. As a conventional economic policy to boost economic growth, tax cuts remain an area of economic policy which experience different chances of success and failure for a broad range of complex reasons. In the case of Obama's stimulus plan, tax cuts played a significant role in affecting economic upturn by targeting specific taxpayer segments and economic sectors. It remains to be determined how effective similar tax cut policies would be in impacting positively on overall economic growth during periods of more economic activity.

Works Cited

Baker, Peter, and Carl Hulse. "Obama Plan Includes $300 Billion in Tax Cuts." The New York Times. The New York Times Company, 2009. Web. 4 Apr. 2015.
Engen, Eric M., and Jonathan Skinner. Taxation and economic growth. No. w5826. National Bureau of Economic Research, 1996.
Gale, G. William, and Andrew A. Samwick. Economic Studies at Brookings. Effects of Income Tax Changes on Economic Growth.  The Brookings Institution, 2014. PDF file.   
Grabell, Michael, and Christopher Weaver. "The Stimulus Plan: The Tax Cuts." ProPublica. Pro Publica Inc., 2009. Web. 4 Apr. 2015.
Grunwald, Michael. "5 Years After Stimulus, Obama Says It Worked. " Time. Time, Inc., 2014. Web. 4 Apr. 2015.
Hecker, Richie. "Richie Hecker: Thanks to the Sharing Economy, Everyone Is an Entrepreneur." The Wall Street Journal. Dow Jones & Company, Inc., 2015. Web. 4 Apr. 2015.
Hossain, Farhana, Amanda Cox, John Mcgrath and Stephan Weitberg. "The Stimulus Plan: How to Spend &787 Billion." The New York Times. The New York Times Company, n.d. Web. 4 Apr. 2015.
Teslik, Hudson Lee. "The U.S. Economic Stimulus Plan." Council on Foreign Relations. Council on Foreign Relations, 2009. Web. 4 Apr. 2015.
Wolverson, Roya. "The Stimulus Report Card." Council on Foreign Relations. Council on Foreign Relations, 2010. Web. 4 Apr. 2015.