Tax relief

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Tax relief refers to efforts to reduce the burden of high tax rates on consumers, wage earners, businessmen, and investors. Many tax relief measures are designed to reduce the rate of taxation while maintaining or even boosting the tax revenue (see Laffer curve).

There's a sharp divide between those advocating reduction of tax rates or increases in them. Tax-rate increase supporters often imply that a reduction in tax rates would cause tax revenues to go down. They use phrases like "cutting taxes for the rich" to argue that a tax-rate reduction would result in rich people paying less of their fair share of the tax burden.

Tax-rate reduction supporters argue that by cutting the rate of taxation, say, as a percent of personal income, the government can bring in more tax revenue. The reason this works, they assert, is that there are many investments and transactions that wealthy people are more willing to do when the tax rate is lowered. A marginal decrease in the tax rate typically results in a disproportionately large increase in taxable activities.

For example, in the 1980s, when Reagan got the capital gains tax rate lowered, wealthy investors stopped hanging on to stocks and began selling them at a profit. The difference between a 40% tax rate and a 20% tax rate was enough incentive for them to stop postponing their sell-offs. The rich got richer, and the treasury got more money.