If a government increases taxes to pay off debts, what effect does this have?

When a government increases taxes with the intention of paying off debts, the primary immediate effect is a decrease in disposable income for citizens. Disposable income refers to the amount of money individuals have available to spend or save after taxes have been deducted. By raising taxes, the government takes a larger portion of individuals' earnings, leaving them with less money to spend on consumption or save for future needs.

This reduction in disposable income can lead to decreased consumer spending, which can have broader implications for the economy. Lower consumer spending may lead to reduced business revenues, potentially affecting employment and economic growth.

The notion that such tax increases only significantly affect the wealthy overlooks the broader economic mechanics at play, as a tax increase typically applies to various income brackets and can impact a large segment of the population, not just the wealthy. While government services might be funded through increased taxes, the statement about services increasing directly as a result of tax hikes is not accurate without additional context on how the increased revenue is allocated.