“Tax cuts lead to reductions in government spending.”

The hypothesis that decreases in taxes reduce future government spending is often cited as a reason for cutting taxes. The results provide no support for the hypothesis that tax cuts restrain government spending; indeed, the point estimates suggest that tax cuts increase spending. The results also indicate that the main effect of tax cuts on the government budget is to induce subsequent legislated tax increases.

The results provide no support for the hypothesis that tax cuts restrain government spending; indeed, the point estimates suggest that tax cuts increase spending. The results also indicate that the main effect of tax cuts on the government budget is to induce subsequent legislated tax increases.

Tax rate cuts may encourage individuals to work, save, and invest, but if the tax cuts are not financed by immediate spending cuts, they will likely also result in an increased federal budget deficit, which in the long-term will reduce national saving and raise interest rates.

We estimate that permanently extending the TCJA would increase primary deficits by $4.0 trillion over the next decade on a conventional basis and by $3.83 trillion including economic feedback effects. Most of the cost of extending the TCJA comes from reduced revenues, which decrease by $4.0 trillion ($4,011 billion) over the 2025-2034 period.

The legislated tax reductions passed by Congress and signed by the president in the One Big Beautiful Bill Act (OBBBA) are forecast to add $4.6 trillion to the federal government's debt over the coming decade. In the same bill, to whittle down that price tag, net spending cuts amount to a $1.2 trillion reduction, with the lion's share coming from health care.

The tax and spending changes that were legislated in 2025 are expected, in the near term, to provide a modest boost to activity and to raise the deficit. The general government deficit is expected to remain in the 7–7 ½ percent of GDP range with debt exceeding 140 percent of GDP by 2031.

Governments responded by trying to boost activity through two channels: automatic stabilizers and fiscal stimulus—that is, new discretionary spending or tax cuts. Stabilizers go into effect as tax revenues and expenditure levels change and do not depend on specific actions by the government.

The FY2025 House budget reconciliation includes budget reconciliation instructions calling for $1.7 trillion in net spending cuts and $4.5 trillion in net tax cuts (with room for adjustments), allowing for a $2.8 trillion increase in primary deficits over the 10-year budget window from FY2025 to FY2034.

The tax cuts increase government borrowing and reduce national saving. In addition, they widen income inequality and will ultimately reduce incomes for most middle- and low-income families, while diminishing the effectiveness of the tax system in cushioning fluctuations in after-tax income.

Our second finding is that reductions in entitlement programs and other government transfers were less harmful to growth than tax increases. Such cuts were accompanied by mild and short-lived economic downturns, probably because taxpayers perceived them as permanent and so expected that the taxes needed to fund the programs would be lower in the future.

The use of tax incentives instead of direct spending to promote social and economic goals is growing. This paper considers whether it matters if fiscal interventions take the form of direct spending or tax breaks. Tax breaks can, and increasingly do, replace spending programs with the same effects on resource allocation and income distribution.

I no longer believe that this theory of “starving the beast” is correct. It's now obvious to me that as long as the government can finance its current expenditures with borrowed funds, a policy of refusing to allow taxes to be raised in order to meet expenditures doesn't starve the beast; that policy engorges the beast.

The general consensus is that fiscal adjustment packages comprising mostly spending cuts are more likely to lead to lasting debt reduction than those composed of tax increases. In fact, if accompanied by the right type of policies (especially changes to public employees' pay and public pension reforms), spending-based adjustments can actually be associated with economic growth.

Economic research shows that stabilizing government debt by cutting spending can unleash economic growth. ... Pairing tax reform with significant spending cuts is not only fiscally responsible but critical to a pro-growth agenda.

We show empirical evidence that fiscal stabilization plans based on spending cuts are more effective than raising taxes. In times of critical fiscal stress, raising taxes and cutting spending may be needed to make fiscal stabilization plans more effective.

Supply-side economists believe that taxes should be cut -- period. Spending cuts and deficits, they believe, are not important considerations. The 1980 supply-siders claimed that the growth resulting from tax cuts would be so great, and the total tax collections increased so much, that America would simply outgrow its deficits. This did not happen, of course. Mainstream conservative economists generally believe that tax cuts should be accompanied by spending cuts -- that is, fiscal responsibility.

Spending reductions are not the only way to balance the budget. In fact, the negative economic effects from a personal tax increase would be less than those of a governmental spending decrease.

Cutting taxes does not boost economic growth nor lead to more taxes being collected. The notion that it does, known as the Laffer Curve hypothesis, has been widely discredited.