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The Benefits Of Lower Tax Rates

A new analysis, Fiscal Fact 141, published by the Tax Foundation this week reports that:

“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 casual 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.”

The Tax Foundation analysis also reminds us that:

“Absent any action by the Congress, the top tax rate will rise back to 39.6 percent after the 2001 and 2003 tax relief sunsets at the end of 2010. Understanding the effect of the lower tax rates enacted in 2001 and 2003 will help us evaluate the likely effects of proposals to roll back the lower tax rates or let them rise back to their previous levels.”

Sure is a reminder that our vote in November is indeed important.

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