ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The Bottom Line Tax cuts reduce government revenues and create either a budget deficit or increased sovereign debt. Critics often argue that the tax cut benefits the rich at the expense of those with fewer resources as services beneficial to those in a lower income bracket are cut.

Detailed explanation-2: -A reduction in income taxes increases disposable personal income, increases consumption (but by less than the change in disposable personal income), and increases aggregate demand.

Detailed explanation-3: -Since rich people save more than the poor, progressive rate of taxation reduces savings potentiality. This means low level of investment. Lower rate of investment has a dampening effect on economic growth of a country. Thus, on the whole, taxes have the disincentive effect on the ability to work, save and invest.

Detailed explanation-4: -income tax, levy imposed on individuals (or family units) and corporations. Individual income tax is computed on the basis of income received.