Effect of change in tax rate on deferred taxes.

A deferred tax
asset (DTA) and a deferred tax liability (DTL) are derived from differences in
taxes payable and the amount of tax expense recognized on the income statement.
DTA & DTL represent an amount of income tax expense that a company will receive
credit for, or be liable for in the future. Increases (decreases) in tax rates
will increase (decrease) DTA and DTL. Tax rates dictate the amount of deferred
taxes to be recorded because it determines the amount of taxes to be paid. 

Formula

Income Tax Expense = taxes payable + Change in DTL – Change in DTA

Increases
(decreases) to DTL will result in higher (lower) income tax expense. Increases
(decreases) to DTA will result in lower (higher) income tax expense.