Final answer:
Deductions reduce taxable income, leading to tax savings and increased disposable income, impacting consumption and investment decisions.
Explanation:
Deductions decrease a person's taxable income by reducing the amount of income subject to taxation. For example, individuals can deduct expenses like home mortgage interest and charitable contributions. These deductions result in significant tax savings for qualifying individuals.
When there is a cut in the tax rate, taxes paid by households decrease, leading to an increase in disposable income. This extra income can impact both individuals and the overall economy, influencing consumption and investment decisions.
Learn more about Tax deductions and their impact on taxable income here:
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