Tax Cuts and Economic Theory: Impact on the Phillips Curve in the US

Tax cuts typically stimulate economic activity by putting more disposable income in pockets of consumers, increasing demand for goods and services. However, if tax reductions are limited to a small group of people, the overall scale of stimulation can be quite small. In the short run, though, this might potentially increase inflationary pressure if demand increases more than supply, leading to a movement along the Short Run Phillips Curve up and left. Remember - The short-run Phillips Curve reflects an inverse relationship between the rate of inflation and the rate of unemployment. When inflation is high, unemployment tends to be lower because businesses demand labor to meet the higher level of economic activity. And when inflation is low, unemployment tends to be higher. Keep in mind that the specifics can highly depend on the specific conditions of the economy and the scale of the tax cuts. If they're quite large even if limited to a small group of people (say, high-income earners who have a high marginal propensity to consume), the impact might be more significant.