In 1998, there were disputes about whether deflation appeared, and there were many suggestions to stimulate the economy by various measures including tax cuts. In 1999, during conditions of falling prices, lack of consumption and slow economic growth, more and more people made the judgment that China’s economy was in or tended to be in a stage of deflation. Therefore, after the central government decided to further carry out expansionary fiscal policy and took a series of supporting measures, the appeal about tax cuts appeared again. It seems that in China, the unavoidable problem is what kind of tax policy can be chosen to deal with severe deflation.