One of the best ways for an economy to grow is to make sure that citizen have more disposable income. The money that goes into the government does not always benefit the people it was intending to, but when people have more money in their pockets, there is a much greater chance of economic activity.
There are some great advantages to the economy when tax credits are given to individuals and businesses. In either case, the money is generally going to be spent in or around the economy which is greater economic activity.
Advantage for individuals
There are a few well-known tax credits available to individuals such as the child tax credit and earned income credit. In a study done by the Center on Budget and Policy Priorities, a think tank located in Washington, DC, it was found that these two credits are responsible for an increase in the personal promotion of work, a reduction in poverty, and increased support for child development. The reality is that when people have more they are likely to spend more. There is no better way to expand an economy than with spending from the individuals in that economy with the business in that economy.
Advantage for businesses
Although businesses can receive some benefit from their own tax credits accrued to their accounts such as FUTA and SUTA, the greatest thing that a business can receive is profits from the sale of its goods and services. When people are spending money because of tax credits, there is a much greater opportunity for businesses to pitch products and services that they might not otherwise be able to afford. Saving more does not mean a thing if they are not spending it on other items of more usefulness.
Facts that stand
The Brookings Institute has put out reports that show how decreased poverty is a very strong indicator of economic progress. Tax credits are known to decrease poverty by simply giving individuals more disposable income which they in turn will send back into the economy. There may be some who believe that this is not as strong a correlation; however, statistical data bears this out. Business require income in order to operate, households require income in order to spend with those businesses. Earned income credit has the potential of putting billions into circulation for an economy. This very same money, when left in government hands, does not yield the same result. The government collects taxes; they do not earn income by way of productivity. The economy has to be left to produce products and services; but allowed to sell them to people who have the income to purchase them.