The large federal deficit in the United States has spurred intense debate on whether the sizeable tax cuts enacted by the previous administration should be maintained or allowed to lapse. The tax cuts were intended to spur consumer demand during the financial crisis. Economists argued that lower taxes would lead to increased consumer spending, thereby providing an economic stimulus as production and employment expanded to meet higher demand. Some economists also argued that lower tax rates motivate producers to invest and produce more, which also helps stimulate employment. Taxes influence the behavior of an economy's consumers and producers in important ways. CGE models have proven to be a valuable tool for researchers in empirically and comprehensively analyzing how taxes affect households’ and firms’ economic decisions about how much to consume, produce, and trade, and how these actions impact the economy as a whole.

Governments impose taxes for many reasons. Foremost is the need to raise revenue to support the provision of public goods such as national defense and education. Governments sometimes use taxes to redress market failures such as externalities. For example, the government may impose carbon taxes to reduce the harm to public health that is associated with air pollution by private industry.