Analyzing the Economic and Budgetary Effects of a 10 Percent Cut in Income Tax Rates. Economic and Budget Issue Brief

摘要

Tax policy affects the economy in a variety of ways. Changes in marginal tax rates and changes in after-tax incomes affect peoples choices about how they divide their time between work and leisure and how they divide their income between consumption and saving. Those choices in turn affect the amount of labor and productive capital available to generate economic output. Tax policy also influences overall demand for goods and services, which affects output in the short run. Finally, tax policy affects the composition and level of output by changing the relative returns to different economic activities. All those economic effects in turn influence the federal budget.