Newsletter Archive

October 22, 2004

Here's the latest from the Urban-Brookings Tax Policy Center:

• Bush Administration Tax Policy: Introduction and Background
  William G. Gale and Peter R. Orszag
  September 13, 2004
• Bush Administration Tax Policy: Distributional Effects
  William G. Gale and Peter R. Orszag
  September 27, 2004
• Bush Administration Tax Policy: Revenue and Budget Effects
  William G. Gale and Peter R. Orszag
  October 4, 2004
• Bush Administration Tax Policy: Effects on Long-Term Growth
  William G. Gale and Peter R. Orszag
  October 18, 2004

Bush Administration Tax Policy: Introduction and Background
William G. Gale and Peter R. Orszag
September 13, 2004

The gains in efficiency, equity, and simplicity from systematic tax reform could be substantial. However, to achieve those gains requires attention to many details. Tax reform efforts have failed often, but they have also succeeded, especially when rising problems created the opportunity and demand for reform, and tough issues were tackled in a spirit of bipartisan cooperation.

Bush Administration Tax Policy: Distributional Effects
William G. Gale and Peter R. Orszag
September 27, 2004

This paper evaluates the distributional effects of the 2001 and 2003 tax cuts, and is the second paper in a series on tax policy in the Bush Administration. We show that the tax cuts enacted to date increase the disparity in after-tax income; after-tax income rises by a larger percentage for high-income households than low-income households. Once the eventual financing of the tax cuts is taken into account, the distributional effects will likely be even more regressive. If the eventual policy adjustments needed to finance the tax cuts impose burdens that are proportional to income: about 80 percent of households, including a large majority of households in every income quintile, will end up worse off after the tax cuts plus financing than before; most families (i.e., with children) and most taxpayers with small business income will be worse off; and even if the tax cuts raise economic growth significantly, most households will end up worse off when the financing is included. We also address several criticisms of distributional analysis.

Bush Administration Tax Policy: Revenue and Budget Effects
William G. Gale and Peter R. Orszag
October 4, 2004

This paper evaluates recent tax policies in light of the fiscal status of the federal government, and is the third paper in a series that summarizes and evaluates tax policy in the Bush Administration. We show that the government faces significant medium-term deficits and unsustainable long-term shortfalls, even if the tax cuts are allowed to expire as scheduled; making them permanent would significantly exacerbate these problems. In addition, permanent tax cuts have to be paid for, and the required spending cuts would far exceed any that have been proffered in the public discussion. Over the next 75 years, the total costs of the tax cuts, if they are made permanent, are roughly the same order of magnitude of the actuarial shortfall in the Social Security and Medicare Part A trust funds. On a permanent basis, the tax cuts would cost significantly more than fixing the entire Social Security shortfall.

Bush Administration Tax Policy: Effects on Long-Term Growth
William G. Gale and Peter R. Orszag
October 18, 2004

Tax policy can raise growth in the long run increasing the level and improving the allocation of labor and capital inputs. The net effect of the recent tax cuts on growth is theoretically uncertain and is the net effect of (a) the generally positive effects induced by lower marginal tax rates, (b) the negative effects induced by higher budget deficits. Several studies have quantified the various effects noted above in different ways and used different models, yet all have come to the same conclusion: Making the tax cuts permanent is likely to reduce, not increase, national income in the long term unless the reduction in revenues is matched by an equal reduction in unproductive government consumption expenditures. Even in that case, a positive impact on long-term growth occurs only if the spending cuts occur contemporaneously, which has decidedly not occurred, or if models with implausible features are employed.

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