Consumer Income

Governments enforce taxes on a multitude of trade and industry operations including revenue obtained from financial resources such as income, earnings, employment, and surpluses to raise money to maintain operational funding. Taxes on earnings can provide large sources of monetary benefits to the government, but can sometimes negatively impact the progress of economic growth. Income taxation often causes a reduction in society's demand for goods and services, also known as aggregate demand (Economicae, 2008).

When the demand for goods and services is low, economic growth is negatively affected because fewer workers are hired by businesses. Businesses create layoffs hoping to cut company costs which leads to economic contraction (Economicae, 2008). Disposable income plays a vital role in aggregate demand. Often, factors such as income taxes decrease aggregate demand by decreasing the final income that society brings home (Economicae, 2008). This example typically affects spending in areas like entertainment because the majority of household income is used for necessities. Minimizing taxes for middle and lower class families can very possibly create higher aggregate demand. This would allow the current use of household income to flow more abundantly into the economy and increase aggregate demand. This monetary flow would alleviate the need to conserve private funds and more money could be circulated into the economy.