Your answer is expected to be typed/ double space written and about two-three pages long. The final draft of the essay is due to Wednesday October 18th .  I will collect your essay in class on the due date. No late work is acceptable.

Answer the question in the following structure. In your answer, address the following issues:

a. Would this tax policy lead to higher or lower income inequality? What would be its impact on the economy?

b. Explain the possible causes of the current economic downturn. Discuss Paul Krugman and Joseph Stiglitz’ argument that President Bush’s tax plan does little to stimulate the economy, but leads to increased income inequality. Explain the specific components of the proposed tax plan such as dividends tax and estate tax cuts

c. What forms of tax cut do you suggest in order to stimulate the economy and reduce the level of income inequality?

d. How do you evaluate Stiglitz’ suggestion of investment tax credit as a stimulus to economic recovery? 

e. Would President Bush’s proposed capital gain tax cuts, elimination of dividend tax, and elimination of estate tax offer the same benefit to the economy? What are the implications of this tax cut policies for the short-run and long-run growth of the economy?

2 Joseph E. Stilglitz, Bush’s Tax Plan- the Dangers, The New York Review of Books.

2 Issue 13, Are Tax Cuts Good for America? Yes: Amity Shlaes, No: Paul Krugman