2002 Articles

Marginal Tax Rate Cuts and the Public Tax Debate

Calomiris, Charles W.; Hassett, Kevin A.

During the course of the public policy debate concerning the likely economic impact of EGTRRA (The Economic Growth and Tax Relief Reconciliation Act of 2001), very little reference was made to the public finance literature concerning the likely impact of marginal tax rate reductions. Instead, proponents of the bill, like the president himself, argued that the reduction in revenue was advisable because it would lower the growth of government spending. Opponents of the bill chose to emphasize two effects of the bill. First, they argued that the bill benefited the wealthy disproportionately, and they connected the reduction in the budget surplus that would result from the decline in revenue to long-term interest rates, arguing that the increase in rates would offset any gains that the marginal rate reductions might provide.