The Bush Tax Cuts, Revisited

New research shows the 2001 and 2003 rate reductions spurred bigger-than-expected revenue gains.

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The folks at the Tax Foundation point to new research that shows the 2001 and 2003 cuts in marginal tax rates significantly affected taxpayer behavior. Now that's just common sense to everyone but balanced-budget hawks and economists at the Congressional Budget Office. Here's a key bit (bold is mine):

Recent research on President Bush's tax relief in 2001 and 2003 has found that the lower tax rates induced taxpayers to report more taxable income. In particular, the reduction in the top two tax rates induced taxpayers to report more taxable income—an increase in the size of the tax base—to such an extent that this positive behavioral response likely offset roughly 25 percent to 40 percent of the static revenue loss of lowering the top two tax rates. This research illustrates that, while the lower tax rates have not paid for themselves, they do provide important economic benefits and can expand the tax base to such an extent that they cost the federal government substantially less revenue than the c asual observer might think. Moreover, this research may provide valuable insights into the harmful effects of high tax rates as the Presidential candidates' tax plans are evaluated.