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... proposed tax cut. There are two references used for this paper.
Introduction
President Bush has proposed a new tax cut in an effort to help the sluggish economy. It is important to explore three questions concerning this tax cut, to determine whether is it beneficial or not.
Three Question About Tax Cuts
When looking at the proposed tax cut, it is crucial to examine how it is related to the budget deficit. The current budget deficit is the result of politicians being irresponsible and not meeting budgetary constraints (Solotorovsky). Tax cuts may help the economy short term, but unless there are also “commensurate cuts in spending, their only result will be a long period of budget deficits whose damage to the economy far outweighs any initial stimulus (Solotorovsky).”
The tax cut has an effect on the AD curve and involves the multiplier effect. The AD curve will see an upward shift when there is a tax cut or increase in government spending. The multiplier effect follows the formula of “cumulative change in spending = multiplier x initial change in consumption (highered.mcgraw-hill.com/sites/0072374071/student_view0/chapter 12).” The tax cut is meant to stimulate the economy and provoke consumer spending by increasing disposable income.
When looking at the current ...

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