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What is tax cut in simple understandable term?
am a bit confused. Does it mean tax reduction or tax deduction?
3 Answers
- 1 decade agoFavorite Answer
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. In the longer term, however, the loss of government income may be mitigated, depending on the response that tax-payers make. Depending on the original tax rate, tax cuts may provide individuals and corporations with an incentive for investments which stimulate economic activity. It has been theorized that this can generate additional taxable income which could generate more revenue than the was collected at the higher rate. 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.