Number: RL32502
Title: What Effects Have the 2001 to 2003 Tax Cuts Have on the Economy?
Authors: Marc Labonte, Government and Finance Division 
Abstract: This report traces out the channels through which the tax cuts are thought to affect the economy and assesses the performance of those economic indicators, including gross domestic product (GDP), employment, interest rates, inflation, labor supply, saving, capital investment, and the trade deficit. The report uses theory and data to evaluate the tax cuts' effects through 2004. (This report does not analyze economic developments since 2004. Presumably, individuals had adjusted their behavior to the tax changes by then, and economic developments since have not been significantly influenced by tax cuts enacted several years earlier.) The report also offers an overview of the forecasts of their effects made at the time the tax cuts were passed. Most estimates predicted that the tax cuts would increase economic growth in the short-term and reduce it in the long run. Despite the wide diversity of the models used, all of the results are relatively small, as would be expected of tax cuts that are relatively small in relation to GDP in the years considered.
Pages: 30
Date: January 16, 2008