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

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 specifi cations and samples ranging from about 0.2 to 0.7.

The effect of recent tax changes on taxable income: Evidence from a new panel of tax returns

“…These results are roughly consistent with the estimates of 0.26 to 0.38 found in Carroll (1998), Gruber and Saez's (2002) estimated elasticities of around 0.12 for gross income and around 0.40 for gross taxable income, and the estimates in Giertz (2007), who estimated gross income elasticities of 0.23 for the 1980s and 0.13 for the 1990s, and taxable income elasticities of 0.40 for the 1980s and 0.26 for the 1990s. They are also consistent with the results presented in Singleton (2007), which examines a similar time period and finds elasticities ranging from 0.164 to 0.664, depending on the instrument utilized, and estimates around 0.40 found in Auten, Carroll, and Gee (2008). They are somewhat smaller than estimates in Auten and Carroll (1999) and Heim (2007) but fall well below some results found in Lindsey (1987) and Feldstein (1995).…”

“…He finds elasticities ranging from 0.164 to 0.664, depending on the number of prior years data used to create a synthetic tax rate instrument. Auten, Carroll, and Gee (2008) examine both EGTRRA and JGTRRA using a panel constructed with individuals who are present in cross sections of tax returns three years apart. They find elasticities of around 0.4.…”

The Elasticity of Taxable Income: A Meta-Regression Analysis

“…Study N in % Aarbu and Thoresen (2001) 8 0.56 Arrazola et al (2014) 8 0.56 Arrazola-Vacas et al (2015) 26 1.83 Auten and Carroll (1999) 20 1.41 Auten et al (2008) 10 0.70 Auten and Joulfaian (2009) 24 1.69 Auten and Kawano (2014) 10 0.70 Bakos et al (2010) 21 1.48 Blomquist and Selin (2010) 10 0.70 Burns and Ziliak (2017) 64 4.51 Carey et al (2015) 6 0.42 Carroll (1998) 12 0.85 Chetty et al (2011) 6 0.42 Doerrenberg et al (2017) 16 1.13 Ericson et al (2015) 5 0.35 Gelber (2014) (2013) 54 3.80 Kiss and Mosberger (2014) 15 1.06 Kleven and Schultz (2014) 114 8.03 Kopczuk (2005) 91 6.41 Kopczuk (2015) 30 2.11 Kumar and Liang (2015) 10 0.70 Lehmann et al (2013) …”

Dividend Taxes and Stock Volatility

“…8 See Auten, Carroll and Gee (2008) for a detailed description of all the tax changes associated with the 2003 law.…”