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1 Scott A. Hodge, One-Time Tax Rebates Will Fall Short of Political Promises and Public Expectations 1 (2001)

handle is hein.taxfoundation/taxfaage0001 and id is 1 raw text is: TAX w- FOUNDATION April 2001 One-Time Tax Rebates Will Fall Short of Political Promises and Public Expectations By Scott A. Hodge The continuing drift in the performance Executive Director of the American economy has prompted Tax Founidation many members of Congress to propose as much as $60 billion in tax rebates this year, under the assumption that a quick infusion of cash into taxpayers' wallets will boost In their attempt to do something to spur the economy, Congress and the Admini- stration should not abandon the principles of sound tax policy outlined by Chairman Greenspan during his recent testimony before the Senate Budget Committee. the economy. One such measure, advocated by Senator Joe Lieberman, would give every worker a tax rebate of at least $300, while other initiatives would couple a rebate with If lawmakers are intent on cutting taxes by $60 billion this year, they would get a bigger bang for the buck by immediately cutting income tax rates, preferably to either the first-year or second-year levels specified under the Bush plan. a reduction in the lowest income tax rate, say, from 15 percent to 12 percent. Despite the popular appeal of such mea- sures, lawmakers should not forget the warning of Federal Reserve Chairman Alan Greenspan that such quick-fixes histori- cally have proved difficult to implement in the time frame in which recessions have developed and ended. Instead, Congress and the Administration should quickly move to implement measures - such as reducing all marginal tax rates - that cre- ate the conditions for long-term economic growth. Taxes as a percentage of GDP are clearly too high, so any tax relief would be better than no tax relief. That said, some tax cut measures produce better economic results than others. In their attempt to do something to spur the economy, Congress and the Administration should not abandon the principles of sound tax policy outlined by Chairman Greenspan during his recent testimony before the Senate Budget Com- mittee: As for tax policy over the long run, most economists believe that it should be directed at setting rates at the lev- els required to meet spending commit- ments, while doing so in a manner that minimizes distortions, increases efficiency, and enhances incentives for saving, investment and work. The tax cuts most clearly in line with these principles are meaningful and propor- tional cuts in each of the current five indi- vidual income tax rates: 15, 28, 31, 36, and 39.6 percent. Thus, if lawmakers are intent on cutting taxes by $60 billion this year, they would get a bigger bang for the buck I IR