Tax cuts can help revive the lagging U.S. economy. As Shostak (2009) points out, per Keynes a free market economy "could lead to self-destruction," so the government and central banks must manage it by exerting influence on the level of spending across the economy. Spending is the key to reviving the economy, because when one individual spends money, that money becomes another individual's income (Shostak, 2009). Shostak (2009) states, "If during a recession consumers fail to spend, then it is the role of the government to step in and boost overall spending in order to grow the economy."
Tax cuts are an excellent way to boost spending. For the average middle-class consumer, a tax cut is like a gift-an invitation to spend. When taxes are cut, the effect is similar to the consumer getting a raise on his job; he has more money in his pocket at the end of every week than he used to have-more money to spend. That new mattress the children have been needing or the new car to replace the clunker he has been driving is within closer reach, and he can afford to buy them without straining his budget or going into debt for them. For all intents and purposes, he has been given a higher income without doing a higher level of work, so he has more money available in the coffers to spend.
It must be pointed out that a tax cut in a recessionary economy like the one that prevails at the moment is not necessarily a guarantee that consumers will spend. Consumer confidence is low at the moment, and a certain percentage of consumers is going to put any extra money in the bank, thus defeating the purpose of the tax cut. However, consumer needs will still continue to come about. Shoes will wear out, cars will need repair, and people will still have weddings and graduations, so opportunities to spend will keep arising. The consumer that might not necessarily spend the extra cash on himself may be more inclined to spen
...