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The 2001 and 2003 Tax Rate Reductions: An Overview and Estimate of the Taxable Income Response

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  • Auten, Gerald
  • Carroll, Robert
  • Gee, Geoffrey

Abstract

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) incorporated the main elements of the Bush Administration’s tax proposals. The principal feature of this legislation was the reduction in individual income tax rates. Reducing marginal tax rates was intended to improve the economic incentives to work and invest, reduce the other economic distortions associated with high tax rates, lower overall tax burdens and improve the prospects for economic growth. The paper examines the effects of the lower marginal tax rates by estimating the response of reported taxable income to the lower rates. Using a panel of tax returns spanning the enactment of EGTRRA and JGTRRA, the paper estimates a taxable income elasticity in the base model of about 0.4, with estimates for other specifications and samples ranging from about 0.2 to 0.7.

Suggested Citation

  • Auten, Gerald & Carroll, Robert & Gee, Geoffrey, 2008. "The 2001 and 2003 Tax Rate Reductions: An Overview and Estimate of the Taxable Income Response," National Tax Journal, National Tax Association;National Tax Journal, vol. 61(3), pages 345-364, September.
    • Handle: RePEc:ntj:journl:v:61:y:2008:i:3:p:345-64
    DOI: 10.17310/ntj.2008.3.01
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    References listed on IDEAS

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    1. Austan Goolsbee, 2000. "What Happens When You Tax the Rich? Evidence from Executive Compensation," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 352-378, April.
    2. Gerald Auten & Robert Carroll, 1999. "The Effect Of Income Taxes On Household Income," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 681-693, November.
    3. Robert Carroll & Warren Hrung, 2005. "What Does the Taxable Income Elasticity Say About Dynamic Responses to Tax Changes?," American Economic Review, American Economic Association, vol. 95(2), pages 426-431, May.
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    Cited by:

    1. Alpert, Abby & Powell, David, 2014. "Estimating Intensive and Extensive Tax Responsiveness: Do Older Workers Respond to Income Taxes?," Working Papers 987-1, RAND Corporation.
    2. Jos順鬩x Sanz-Sanz & Mar𨁁rrazola-Vacas & Nuria Rueda-L󰥺 & Desiderio Romero-Jordᮠ, 2015. "Reported gross income and marginal tax rates: estimation of the behavioural reactions of Spanish taxpayers," Applied Economics, Taylor & Francis Journals, vol. 47(5), pages 466-484, January.
    3. Aspen Gorry & Kevin A. Hassett & R. Glenn Hubbard & Aparna Mathur, 2017. "The Response of Deferred Executive Compensation to Changes in Tax Rates," NBER Chapters, in: Personal Income Taxation and Household Behavior (TAPES), National Bureau of Economic Research, Inc.
    4. Lang (Kate) Yang & Bradley T. Heim, 2017. "Responsiveness of Income to Local Income Taxes: Evidence from Indiana," National Tax Journal, National Tax Association;National Tax Journal, vol. 70(2), pages 367-392, June.
    5. Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.
    6. Ahiteme N. Houndonougbo & Matthew N. Murray, 2019. "Millionaires or Job Creators: What Really Happens to Employment Growth When You Stick It to the Rich?," Public Finance Review, , vol. 47(1), pages 112-141, January.

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