The Coming Tax Hike: Letting the 2001 and 2003 Tax Cuts Expire Would Wreak Havoc on the U.S. Economy

Publication Date: January 2008

Publisher: Hoover Institution on War, Revolution, and Peace

Author(s): R. Glenn Hubbard; John F. Cogan

Research Area: Banking and finance

Keywords: Taxes; Economy

Type: Report

Coverage: United States

Abstract:

President Bush's tax code changes enacted in 2001 and 2003 are scheduled to expire at the end of 2010 unless the next Congress and president agree to rescind it. Letting them expire would drive the personal income tax burden up by 25 percent —its highest point, relative to GDP, in history.

This article highlights historical tax increases and uses line graphs to illustrate that the right policy, for both the economy and the budget, would be to make current tax rates permanent well before the scheduled increase. Giving investors greater certainty that current tax rates will be maintained will spur investment and aid the economic recovery, as it did in 2003. Federal budget balance will be achieved once the economy is again operating normally.