Question

From where will the government get the funds to provide more subsidies on goods and services without raising taxes? Should we let the deficit increase further and thereby add to the more than $21 trillion of debt? You have also suggested increasing corporate taxes, just last year the corporate tax was lowered from 35%, which was one of the highest in developed economies, to 21%. Do you think that was a wrong move and we should have instead increased it?

Answer 1

Govt can finance subsidies by-

1. Borrowing from citizens through govt securities.

2. Borrowing from foreign countries or agencies like world bank etc.

3. Issuing bonds in international market.

No we should not increase deficit further as with it interest payments increase and country's credibility decrease. Instead of increasing fiscal deficit, expenditures can be curbed on other areas to increase the required subsidies.

Corporate tax was lowered with the intention to fuel economic activity. This would increase GDP and employment levels. It may lead to higher tax revenue compared to 35% level due to larger tax base now.So it was not a wrong move.