Publications by Topic
Topic: 2004 Legislation
The American Jobs Creation Act of 2004: Creating Jobs for Accountants and Lawyers (Policy Briefs/Tax Policy: Issues and Options)
Author(s):
Kimberly A. Clausing
The American Jobs Creation Act of 2004 will repeal an export tax incentive (called ETI) that the World Trade Organization has ruled illegal. Yet the legislation also risks undermining the integrity of the U.S. tax system in important ways. While the bill is ostensibly aimed at promoting job creation and international competitiveness, the legislation is not an effective way to achieve these aims. As it stands, the main impact of the legislation will be to make the corporate income tax system more complex, less efficient, and less fair.
Published: 12/01/04
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Bush Administration Tax Policy: Summary and Outlook (Article/Tax Break)
Author(s):
William G. Gale , Peter Orszag
This is the eighth and final installment in a series that evaluates tax policy in the Bush Administration, covering the years 2001 to 2004. The paper summarizes our principal findings, and discusses some of the key tax and fiscal issues facing the Administration in its second term.
Published: 11/29/04
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Executive Compensation Reform and the Limits of Tax Policy (Discussion Papers/Tax Policy Center)
Author(s):
Michael Doran
The American Jobs Creation Act of 2004 includes a major attempt to reform the tax rules for deferred compensation arrangements covering corporate managers. This paper examines the tax policy and corporate-governance policy objectives of the reform effort, explores the shortcomings of the legislation, and suggests a different approach for future executive compensation reform.
Published: 11/23/04
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Bush Administration Tax Policy: Starving the Beast (Article/Tax Break)
Author(s):
William G. Gale , Peter Orszag
This paper examines links between the Bush Administration's tax cuts and the goal of "starving the beast"--that is, holding down government spending. It is at best unclear whether tax cuts are effective in restraining spending. The data appear more consistent with the view that once fiscal discipline erodes on one side of the budget, it tends to erode on the other side, too. Moreover, aiming to reduce spending does not justify regressive tax cuts, since most spending cuts would be regressive. Even if "starving the beast" justified the original 2001 tax cuts, the strategy does not justify making the tax cuts permanent because the government will face future budget deficits even without extending the tax cuts.
Published: 11/15/04
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Bush Administration Tax Policy: Down Payment on Tax Reform? (Article/Tax Break)
Author(s):
William G. Gale , Peter Orszag
Bush Administration tax policy has sometimes been defended as a piecemeal approach to fundamental reform. Consistent with fundamental reform, the tax cuts reduced marginal capital income tax rates and flattened rates. But the similarities end there. A well designed consumption tax would (a) be revenue-neutral; (b) broaden the base; (c) tax existing capital—that is, not provide transition relief; and (d) treat interest income and expense in a consistent manner. The recent tax cuts have none of these features and in many cases have the opposite effects. The result is the worst of both worlds: lower growth, increased shelters, and increased regressivity.
Published: 11/08/04
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Bush Administration Tax Policy: Short-Term Stimulus (Article/Tax Break)
Author(s):
William G. Gale , Peter Orszag
This paper examines the effects of recent tax cuts as a short-term economic stimulus. The passage of the tax cuts was well-timed to offset economic downturns, but several elements of the structure of the tax cuts were poorly designed to provide short-term stimulus. For example, the tax cuts were predominantly back-loaded and did not channel funds toward groups with the highest marginal propensity to consume additional resources. Many provisions were intended to stimulate saving, not consumption. As a result, the tax cuts had at best a small "bang for the buck" relative to other options. An alternative package one containing significant state fiscal relief and tax cuts targeted at low-income households could have provided more stimulus with lower budgetary costs. The tax cuts played a relatively minor role in the economic recovery, compared to monetary policy and other factors.
Published: 11/01/04
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Bush Administration Tax Policy: Effects on Long-Term Growth (Article/Tax Break)
Author(s):
Peter Orszag , William G. Gale
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.
Published: 10/18/04
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Economic Effects of Making the 2001 and 2003 Tax Cuts Permanent (Discussion Papers/Tax Policy Center)
Author(s):
William G. Gale , Peter Orszag
All of the provisions of the landmark tax cuts enacted in 2001 and 2003 are scheduled to expire by the end of 2010. This paper analyzes the economic effects of making the tax cuts permanent. We describe the recent tax cuts and the proposals to make them permanent, and explore the consequences of making the tax cuts permanent with regard to the fiscal status of the government, the distribution of after-tax income, and prospects for long-term economic growth.
Published: 10/15/04
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Bush Administration Tax Policy: Revenue and Budget Effects (Article/Tax Break)
Author(s):
William G. Gale , Peter Orszag
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.
Published: 10/04/04
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Bush Administration Tax Policy: Distributional Effects (Article/Tax Break)
Author(s):
William G. Gale , Peter Orszag
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.
Published: 09/27/04
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