March 6, 2003

 Accelerating Rate Cuts a Poor Stimulus and Reduces Congressional Flexibility
By John Springer

PDF of fact sheet
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The Center on Budget and Policy Priorities has released a new report examining the Administration’s proposal to accelerate the scheduled reductions in the top four income tax rates so the rates scheduled to take effect in 2006 do so in 2003 instead.  As the report, entitled Accelerating Top Rate Reductions Is Ineffective Stimulus and Reduces Flexibility to Address Future Budget Challenges, explains, this proposal has several weaknesses, including:

Upper-Bracket Marginal Income Tax Rates, 2003

Highest Marginal Rate

Percent of Tax Filers Who Fit in This Bracket









Source:  Tax Policy Center

Targeting the tax cut on higher-income taxpayers reduces its effectiveness as a stimulus because these families are more likely than lower-income families to save rather than spend a portion of any new funds they receive.  Only if these funds are spent will they help stimulate the economy.  As the Congressional Budget Office has stated, “tax cuts that are targeted toward lower-income households are likely to . . . be more cost effective . . . than those concentrated among higher-income households.”

Significant sums are involved.  For example, accelerating the rates scheduled for 2006 and maintaining them throughout the coming decade would cost over $200 billion more through 2013 than accelerating and maintaining the rates scheduled for 2004.