The economic history of the United States

The founding generation of the country was reluctant to introduce taxes as a way of funding the federal government and relied heavily on other incomes such as tariffs to fund the government. However, during the civil war, Abraham Lincoln required more funds to fund the army. This led to the introduction of the income tax since 1862. Different income brackets had different taxation rates, for example, those earning $500 worth of income would be taxed at 3% while those earning above $10,000 would be taxed at 5%. The fight to reduce the income tax levels started immediately. The high income earners continued to pay the high tax rates into the World War II. This however changed after President John F. Kennedy assumed office. He aggressively pushed for tax reforms that advocated for tax cuts.

During his speech at the Economic Club, he advocated for tax cuts from across all the incomes and from the top incomes to the low income earners. This creates an avenue for bipartisan passing of bills in the congress which may prove difficult to make any reforms unlike under the Reagan’s era. Steven Mnuchin, the treasury secretary is however confident that the reforms will be implemented before the end of the year. During the world war, many cities were affected economically and began to regain their economic growth after the war era. The late 19th century was also marked with growth in the economy of the country. This was due to the introduction of machines that enabled the citizens to produce large number of goods for sale.

These industrial revolutions resulted to the economic growth of the country as the living standards of the people also improved. Companies also maximized their ways of improving their profits by vertical integration. This simply means that the companies would take over all the processes of transforming a raw material into a final product. This included producing, processing and finally selling them into the final products. This increase their revenues. According to this model, economies that are market based can achieve the same constant rate of economic growth if they employ the same level of technology and achieve the same population growth level. Robert Solow, who is the developer of the Solow model describes that the long-term growth achievement cannot be determined by policy makers.

However the Solow model has its own short comings, in that it fails to reconcile with the real world economy. The empirical findings in countries that have similar technological level and population growth rate have witnessed different levels in the economic growth rate. Another limitation of the model is that it assumes the economic forces do not affect the technological progress. The exports sector accounted for 16% of the countries income. The economy has transformed to the introduction of new technologies, changes in the demographics, changes in the laws and implementation of policies and the change in the size of the sectors of the economy (Tax Law History Conference, Tiley & University of Cambridge. The local economics of the United States in the past was based on subsistence farming.

Handicrafts were also a part of the economic activities that took place in the between in the 1800s. The economy was based on farming agricultural products and extraction of natural resources for both local consumption and exportation. The tax rates mostly benefitted the middle and the low income rates. After the era of President’s Reagan’s tax reforms that ended in the 1980s, the individual income taxes became flat. This flattening of individual income tax graph was a warning of a possible tax deficit in the near future. To counter this, President Bush increased the taxes between for two years of the omnibus bills(Tax Law History Conference. , Tiley, Harris, P, De, & University of Cambridge, 2004). The performance of the businesses is determined by the local economics of a country.

As Robert Solow in his economic growth model argues that the productivity of a business is determined by the capital investment and the labor inputs, the local economic policies which form the market forces which are the main determinants of how businesses are run. The economic policies are the underlying factor that determines the level of capital investment and the labor input. The article ‘digging into the details of trump’s tax reforms’ explains that recent tax policies by President Donald trump to reduce the tax rates for the wealthy and corporations have been supported by several economists who argue that these polices will revive the drowning economic state of the United States. President Trump and President George Washington were faced with similar economic problems that were as a result of bad economic policies for the case of Donald trump and a case of no economic policies for the case of George Washington (Hufbauer & Assa, 2007).

These tax cuts will however be offset by the removal of common deductions and personal income exemptions (Hufbauer & Assa, 2007). The general principle of economic growth is that an increase in the taxation levels slows down the rate of economic growth. The tax cut policy will therefore increase the economic growth by attracting more entrepreneurs to business and citizens will pocket more money and use it for investment and improving their standards of living. However, several criticisms have been made on the tax policies. Others argue that the tax policies will only benefit the wealthy. During Reagan’s tenure, the trickle-down economics generated economic growth. An increase in government expenditure also resulted in the economic growth during both Reagan and George Washington’s administration.

Reagan’s tax reforms are similar to Donald trump’s tax reforms and this may generate the economic growth rate that the country seeks to achieve. However, the only difference with the two tax reforms is that, Reagan’s tax reforms benefitted the middle and the low income earners while Trump’s tax reforms benefit the high income earners more. Conclusion The economic history of the United States of America is what has made the country to be what it is today: one of the greatest economies in the world. This ensures that economic growth generated also improves the living standards of the low income earners. The current tax cut policies in the United States have led to unfair distribution of income since the tax cuts have benefitted the top 1% wealthy persons only.