Internal Revenue Service

Internal Revenue Service

2005

Extract from history : the Jobs and Growth Tax Relief Reconciliation Act of 2003 was passed by the United States Congress on May 23 , 2003 and signed by President Bush five days later . Among other provisions , the act accelerated certain tax changes passed in the Economic Growth and Tax Relief Reconciliation Act of 2001 , increased the exemption amount for the individual Alternative Minimum Tax , and lowered taxes of income from dividends and capital gains (1 , 2005

Going back to the year 2003 such government 's act stirred up

a heated dispute on who will benefit from such tax cuts and whether it is reasonable at all

Government claimed that the tax cuts would boost the economy and lower the unemployment rate . Within the framework of this change in tax law all dividends and corporate capital gains are taxed as long-term capital gains , tax rates are set to the minimum compared to those set in tax law of 2001 . Much emphasis is put on the fact of child credit raise (from 600 to 1 ,000 ) those this issue is especially argued among parents

As I am going to represent an independent 's economist view , it should be stated that my forecast is not so optimistic as the official one though perhaps more realistic and close to the truth

According to the estimation made by the Congressional Budget Office tax cuts would increase budget deficits by 340 billion by 2008 . This may occur , of course , but with a bit longer lag , so for several years we can still enjoy economic growth - at the expense of the future losses

As to government 's plans to combat unemployment with the help of the tax cuts I would like to give you some facts

In a recent study of economist Robert G . Lynch dealing with impact of state and local taxes on economic development he confirms that 'the costs of taxes are much less important to businesses than other location specific costs such as qualified workers , proximity to customers and quality public services (2 , 2002 . And numerous survey , econometric and representative firm studies actually showed that state and local tax cuts are unlikely to stimulate economic activity and create jobs in a cost-effective manner (3 , 2005

In sum , when it comes to predicting economic growth and future revenues that derive from that growth , spending matters . Considered in isolation tax cuts today paid for out of deficits and future tax increases are unlikely to be growth-enhancing . But then , in isolation , automatic or discretionary spending increases are likely to be even worse for the economy in most of these models . Only a full budgetary framework -- in which tough choices are clearly aligned against each other , and benefits and costs of alternative actions compared -- can deal with these issues .Bibliography

Jobs and Growth Tax Relief Reconciliation Act of 2003 . Retrieved on August 16 , 2005 from

http /www .hughchou .org /calc /taxcut2003 .html

Robert Lynch , Rethinking Growth Strategies : How State and Local Taxes and...