A tax reduction thought to be temporary would not increase present consumption spending and aggregate demand as much as expected B. Because people are preparing for the expected higher tax rate in the future.
A tax reduction is a government program or policy that enables individuals and businesses to reduce their tax burdens or resolve their tax-related payments.
A tax reduction reduces the total taxable income and the tax liability and payments.
Some tax reduction programs include allowing charitable donations and granting tax credits for children, etc.
Thus, a temporary tax reduction may not increase consumer spending and aggregate demand as expected because taxpayers still expect to pay higher taxes in the future.
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A. Because tax changes do not change consumption spending and aggregate demand
B. Because people are preparing for the expected higher tax rate in the future
C. Because people might be anticipating deeper tax cuts in the future
D. Because a change in taxation would influence investment, not consumption spending
