Economic Effect of Tax cuts

Economic Effects of Tax Cuts Output and Efficiency Before President Bush took office, his aides began arguing in favor cutting taxes to offset a likely recession. That raises several issues. First, is (or was) there a recession? Although the economy undoubtedly slowed, whether it entered a recession or not remains unclear. Moreover, Johns Hopkins University economist Christopher Carroll has presented evidence suggesting that the administration's rhetoric may, in part, be responsible for declining consumer sentiment …

…among the highest income groups, and by much smaller percentages in the rest of the population. However, there is more to it than that. If the tax cut is reduces government spending, and if government spending goes mainly to lower and middle-income people, then the reduction in government spending induced by the cut would have important distributional effects and should be taken account. Thus, the new tax law is even more regressive than it looks.