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Thus if the taxation policy is shifted, it is possible to create a better situation. Taxes that are now current can be abolished if their contributions are minor. On the other hand taxes can be levied on things that are considered harmful like tobacco and drugs. This will be discussed when the remedies are sought to be established. (Edwards, 292)
"What should be done to resolve it most effectively?"
Tax cuts and abolishing some taxes can be effective with increased government spending. John Meynard Keynes advocated government spending as a method of getting over recession. Therefore a deep consideration of the federal government budget is in order. The budget uses the taxes, and spending by government to reach the desired equilibrium and thus the taxes, and spending are often beyond the general equilibrium and hence budgets are always unbalanced. To control inflation taxes are raised and spending reduced. Like wise in a recession the taxes are reduced and the spending increased. Thus the budget could end in a surplus or deficit as the situation warrants. (Carbaugh, 311) The combination of the monetary policy and the Federal spending are instrumental in bringing about relief from recession and in the opposite side bringing down inflation. Closely allied with the budget are the fiscal policy and deficit spending which increases the interest rates and cause reduction in private spending, causing the state of recession. (Brue, 236)
Tax cuts,...
But once the economy attains equilibrium the employment rate ought to be the criteria for judging of public spending and deficit budgets are necessary in this regard. (Brue, 236) The reduction of taxes may well have deficits created and some alternatives can be heavy tax on vices and some controversial areas like drugs. For example the state of California passed the law in this regard. There was a 'Marijuana Tax Act of 1937' and subsequently the 'Boggs Act' and the 'Narcotic Control Act 1950' and these acts provided very harsh penalties for those possessing and using the drug. If the same is now legalized, it is possible to gain a lot by way of revenue without compromising government revenue. (Khatapoush; Hallfors, 752) It is a possibility worth considering.
References
Brue, E. Essentials Of Economics.
Tata McGraw-Hill, 2006.
Carbaugh, Robert J. Contemporary Economics: An Applications Approach.
M.E. Sharpe, 2010.
<http://www.globalresearch.ca/index.php?context=va&aid=6750>
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