Friday, September 10, 2010

Why the Bush Tax Cuts Worked

Jeffrey Miron writes:

Extending the Bush tax cuts — permanently — is a crucial step in restoring economic growth. The Bush cuts provided lower taxes on ordinary income, especially for taxpayers at the high end of the income distribution. These are some of the most energetic and productive people in society; raising tax rates would discourage their effort and entrepreneurship. High-income taxpayers also have multiple ways of avoiding high tax rates, so any revenue gain from raising rates would be modest.

The Bush cuts also lowered taxes on dividend and capital gains income; maintaining these lower rates is even more important for economic performance. Capital is mobile: when it is taxed heavily here, it flees somewhere else, meaning lower investment and employment in the United States. And because capital income taxes discourage investment or drive it overseas, they generate little if any tax revenue.

Opponents of the tax cuts do not seriously dispute these claims about the productivity benefits of lower rates. Instead, their real objection is that the Bush tax cuts (allegedly) favor the wealthy.

read the entire essay

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