Would Federal Tax Cuts Adversely Affect The Dollar?

A federal tax cut can affect the value of the dollar.  If the tax cut is too steep and is all at one time, then it can send the economy spiraling out of control.  However, a tax cut can also stimulate the economy with growth. The economy decides whether a federal tax cut is good or bad.

Stimulating the Economy

In theory, if there is a tax cut, then more people have money available to spend. In this way, a tax cut can stimulate the economy because it provides jobs in stores and factories. 

The Rise in Cost of Goods

However, a quick and steep tax cut can allow things to grow too fast. One affect of having the economy grow too fast is the immediate rise in the cost of goods.  If there is a rise in the cost of goods that is too drastic the value of the dollar can be affected.


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