Introduction A budget deficit comes about when the government’s spending exceeds government revenue. That is, income from taxes and other sources are not adequate to meet the expenditure. In most cases, budget deficit calls for either external or internal borrowing or increase of taxes. On the other hand, tax cuts refer to reduction in the rate of taxes. Tax cuts impact the economy by reducing the real income of the government while increasing the real income of the taxpayers. Current situation on budget deficits In the United States, the famous Bush Tax Cuts were introduced in 2001 and 2003. These cuts were supposed to expire in 2010 but President Obama agreed to extend them to the next two years up to 2012. His reasons behind tax cutting were to encourage investors and enhance creation of employment. Within the first four years of the tax cut, revenues had gone down by around $474 billion with the overall decrease being $2.4 trillion to date (CBO 18). President Obama has also assented tax-cutting laws, including the American Recovery and Reinvestment Act (AARA) and the Recovery Act, which is worth $243 billion by the year 2012. These are meant to benefit each American household and reduce family’s income tax payments by $800. The December 2010 taxes deal “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, is said to cost $400 billion” (CBO 20). All these cuts put together, are going to amount to $654 billion in 2011 and 2012. The difference between Obama’s tax cuts and Bush’s is that, Obama mostly targeted the middle class and even distribution of wealth, while bush was skewed to the few rich. Secondly, Obama’s tax cuts are temporary and most likely to expire next year. The problem In august 2011, the monthly deficit was $44 higher than the amount recorded last year the same time. In total, the government spent $303 billion and gathered $169 billion. The deficit skyrocketed to $1.41 trillion in the 2009 financial year. According to the 2012 budget of the United States federal government issued on February 14, 2011, by President Obama, the total expenditure is going to be $2.627 while the total revenue collected will amount to an estimated $3.729 trillion. This implies that there is an estimated $1.101 trillion budget deficit in 2012 (CBO 115). As indicated by statistics in the current situation, tax cuts have led to a reduction in government revenue, whether permanent or temporary. Some economists argue that the tax cuts initiated by Bush were meant to benefit the high-income households by far. He allegedly gave tax cuts to the rich along with tax breaks, although others claim that the benefits extended to both the middle and lower income earners. The10 year’s tax cut decreased the revenues because they led to the rich paying fewer taxes, yet they should make the biggest contributions to government revenue. The tax cuts did not benefit middle and low class, and thus provision for services called for greater spending. Bush did not look at the long-term effects of the tax cut. Some look at it as a case where the tax cuts could not “pay for themselves.” Although, the policy could have worked in the first quarters, in the overall,