Tax cuts are the reductions in taxes. The immediate effects of tax cuts 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. According to John Spratt, “We can have tax cuts, but when we have tax cuts and do not have a surplus, the amount of the tax cut goes straight to the bottom line, adds to the deficit, and the deficit adds to the national debt, and sooner or later, the debt has to be paid.” Depending on the original tax rate, tax cuts may provide individuals and corporations with an incentive for investments which stimulate economic activity. It has therefore been stated hypothetically that this can generate additional taxable income which could generate more revenue than was collected at the higher rate.
