Toying With the Economic Future

Research Report

Toying With the Economic Future

May 26, 2003

Abstract

If one is a traditional tax reformer, there was much to recommend in the president's initial approach to tax policy. As the tax "reform" process has unraveled, however, Congress has twisted various tax bills into budget packages oriented toward meeting some sound bite, such as the size of each package over a limited span of years. Its way of achieving this goal has been to schedule very large tax increases in the future. First, these scheduled tax increases could cause timing shifts in economic behavior large enough to threaten economic growth. Second, they will inevitably distort investment and financing decisions in firms and the capital markets. Finally, they mess up the budget process for the future by making it difficult to know even what the law will be in the future.

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