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Internal revenue service

On May 23, 2003 the United States Congress passed the Jobs and Growth Tax Relief Reconciliation Act of 2003 which was 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). 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. However, according to the estimation made by the Congressional Budget Office, by 2008 these tax cuts would increase budget deficits by $340 billion and this seems to be more realistic.

As to government’s plans to combat unemployment with the help of the tax cuts, I would like to refer to the recent study of economist Robert G.Lynch dealing with impact of state and local taxes on economic development in which 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).

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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). To conclude, supporters of the tax cuts should admit that they did not bring the desired results and are unlikely to be growth-promoting in the future.

Only a complete budgetary reform with a due attention to all possible benefits and costs can improve our economic situation.

Bibliography 1. Jobs and Growth Tax Relief Reconciliation Act of 2003. Retrieved on August 16, 2005 from http://www. hughchou. org/calc/taxcut2003. html 2. Robert Lynch, Rethinking Growth Strategies: How State and Local Taxes and Services Affect Economic Development, Economic Policy Institute, 2002. 3. The States That Cut Taxes the Most During the 1990s Have Suffered Lately. Retrieved on August 16, 2005 from http://www. cbpp. org/1-12-05sfp. htm.

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