Tax Cut

A tax cut is a reduction in taxes. The immediate effects of a tax cut are a decrease in the real income of the government and an increase in the real income of those whose tax rate has been lowered. Due to the perceived benefit in growing real incomes among tax payers politicians have sought to claim their proposed tax credits as tax cuts. In the longer term, however, the loss of government income may be mitigated, depending on the response of tax-payers. Depending on the original tax rate, tax cuts may provide individuals and corporations with an incentive investments which stimulate economic activity. Politically Conservative opinion-makers have theorized that this can generate additional taxable income which could generate more revenue than was collected at the higher rate, although this view is almost universally rejected by economists. The longer term macroeconomic effects of a tax cut are not predictable in general, because they depend on how the taxpayers use their additional income and how the government adjusts to its reduced income.