About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

154 IRET Congressional Advisory 1 (2003)

handle is hein.taxfoundation/iretcgadv0151 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. June 6, 2003 Advisory No. 154 THE FINAL TAX COMPROMISE: A GOOD OUTCOME, DESPITE THE LIMITED BUDGET AND POLITICAL CONSTRAINTS The Jobs and Growth Tax Relief Reconciliation Act of 2003 was hammered together after an unusually chaotic legislative struggle. Was the resulting tax and fiscal policy outcome a hit or a miss? Should we expect the new tax law to improve the economy, do nothing, or hurt the recovery? Does it improve the muddle it further? The 2003 tax cut contains several significant provisions that reduce tax impediments to hiring and capital formation. These steps will help the economic recovery. They are temporary, however, and will have to be extended if they are to achieve their maximum economic impact. The particular structure of these growth-related and jobs-related tax changes, after vacillating . among several competing options of differing quality, turned tax system or out to be a fairly good choice that establishes a sound basis for moving on to fundamental tax reform. Other provisions of the Act, those relating mainly to relief for families and those described as stimulating demand, may serve a social purpose, but they will not boost the economy. The social provisions may have been intended in part to grease the skids for the growth elements, but the social elements took up so much of the revenues available for the tax cut that they reduced the growth incentive portion of the package. As a result, the Act will not be as beneficial for the working poor as it might have been if the productivity, wage, and employment-enhancing features of the bill had been made larger and more permanent. While it was disappointing that the full double taxation of dividends and retained earnings that the President requested was not achieved, the reduced rates of tax on that income provided in the final bill provide a good jumping off point for further steps toward fundamental tax reform. In fact, the approach taken in the 2003 Act allows an easy transition to either a saving deferred income tax (a consumed income tax) in which individuals deduct saving and pay tax on the returns, with no added business tax, or a returns exempt tax, such as the personal side of the Flat Tax, in which individuals get no deduction for saving and pay no tax on the returns, which (after expensing capital outlays) are taxed at the business level. Both options remain open until a consensus is reached as to which is preferred. How tax cuts do and don't work. Tax cuts can work to increase the GDP by raising incentives at the margin to work, save, and invest more than before. That is, they can g~*m Al A * * go~ g ~gg elimination of the While it wvas disappointing that the full elimination of the double taxation of dividends and retained earnings that the President requested wvas not achieved, the reduced rates of tax on that income provlided in the final bill proide a good jumping off point .for further steps towivard .fundamental tax reform.

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most