Tax cut

A tax cut is a reduction in the tax charged by a government. The immediate effects of a tax cut are a decrease in the income of the government and an increase in the income of those whose taxes have been lowered. Tax cuts are typically discussed in terms of reducing tax rates - the fraction of the subject of the tax that is paid, such as income or consumption. Due to the perceived benefits to taxpayers, politicians have sought to claim tax credits as tax cuts.[citation needed]

How a tax cut affects the economy depends on which tax is cut. Policies that increase disposable income for lower- and middle-income households are more likely to increase overall consumption and "hence stimulate the economy."[1] Tax cuts in isolation boost the economy because they increase government borrowing. However, they are often accompanied by spending cuts or changes in monetary policy that can offset their stimulative effects.[2]