If the United States government lowers the income taxes on the wealthiest Americans, while decreasing welfare payments to the poorest Americans, the result will likely be an _____ in efficiency and a ________ in equality in the United States.

Question

Fill in the blank(s) with the appropriate word(s).

Answer 1

Answer: increase ; decrease

When governments design policies aimed at increasing equality, society must also be prepared to accept a decrease in efficiency.
For example, if the U.S. government decreases income taxes on the wealthiest Americans, it gives them an incentive to work harder to produce goods and services, since they will keep a higher percentage of what they earn. The result is more goods and services produced for society overall. In other words, the economic pie would become larger and the economy would be more efficient.
At the same time, however, a lower tax rate on wealthy Americans, with a corresponding decrease in transfer payments to poorer Americans, can decrease equality since the income gap between wealthy and poor Americans will have gotten larger.