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Banned
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ace....I sooooooo deeply deplore your flawed, supply side opinions:
First...there is no sign of "Supply Side" or "Trickle Down" benefit resulting from Reagan or Bush tax cuts....quite the opposite...a dramatic trend toward wealth concentration in the U.S. since 1982:
http://www.census.gov/hhes/www/income/histinc/f04.html
ace....in our last discussion on this subject, I made the mistake of posting the year 2000 individual income tax revenue number, to support my argument and your responded, in <a href="http://www.tfproject.org/tfp/showthread.php?t=125553">post #9 :</a>
Quote:
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Originally Posted by aceventura3
...Regardless of the tax cuts, taxes collected (if you agree there is a correlation to GDP, all other things being equal), would have shown a peak in 2000 during the "dot com bubble bursting" and the economy going into recession. Both events where triggered before Bush took office. Assuming no Bush tax cuts, taxes collected would have declined. No one with specificity can give exact numbers on the impact of the Bush tax cuts, good or bad. However, based on the numbers you posted, after the recession tax dollars collect went up, the economy grew, jobs were created, incomes increased. All evidence of good things resulting from the tax cuts....
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I have omitted the 2000 revenue number in this list:
Quote:
CBO Data <A HREF="http://72.14.209.104/search?q=cache:LK4mcAFfc4cJ:www.cbo.gov/budget/historical.pdf+2005+revenue+tax+revenue&hl=en&gl=us&ct=clnk&cd=7#2">html</A>
Revenues by Major Source, 1962 to 2006
Individual Income Taxes
2001 $994.3 (in billions)
2002 $858.3
2003 $793.7
2004 $809.0
2005 $927.2
2006 $1,043.9
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The Dow 30 index on Nov. 1, 2000...days before the Gore v. Bush election, closed at <a href="http://finance.yahoo.com/q/hp?s=%5EDJI&a=10&b=1&c=2000&d=10&e=30&f=2000&g=d">10899</a>
The Dow, all time high, was put in nearly ten months earlier, on Jan. 14, 2000, closing at <a href="http://finance.yahoo.com/q/hp?s=%5EDJI&a=00&b=1&c=2000&d=00&e=30&f=2000&g=d">11722</a> .
The Nasdaq 2000 index had peaked on March 10, 2000 at <a href="http://finance.yahoo.com/q/hp?s=%5EIXIC&a=02&b=1&c=2000&d=02&e=30&f=2000&g=d">5132</a> . On Nov. 1, 2000, the Nasdaq Index closed at <a href="http://finance.yahoo.com/q/hp?s=%5EIXIC&a=10&b=1&c=2000&d=10&e=30&f=2000&g=d">3339</a> .
The US economy had been stable until the 2000 election, but there were no "above average" capital gains tax influx to spike the 2001 tax revenue collection figure, as late 2000, two major US stock market indexes demonstrate.
Yhe economy did not officially enter recession until six weeks after the 2001 presidential inauguration:
Quote:
http://www.nber.org/cycles/recessions.html
Business Cycle Dating Committee, National Bureau of Economic Research
October 21, 2003
....On November 26, 2001, the committee determined that the peak of economic activity had occurred in March of that year. For a discussion of the committee's reasoning and the underlying evidence, see http://www.nber.org/cycles/november2001. The March 2001 peak marked the end of the expansion that began in March 1991, an expansion that lasted exactly 10 years and was the longest in the NBER's chronology. On July 16, 2003, the committee determined that a trough in economic activity occurred in November 2001. The committee's announcement of the trough is at http://www.nber.org/cycles/july2003. The trough marks the end of the recession that began in March 2001. The 2001 recession thus lasted eight months, which is somewhat less than the average duration of recessions since World War II. The postwar average, excluding the 2001 recession, is eleven months....
Quote:
http://mediamatters.org/items/200405010002
Backdating the Recession: A Report by Media Matters for America; Release date: May 3, 2004
.... NBER's president, Martin Feldstein, was a Bush campaign adviser who has long been close to the Bush family, as the National Review's Lawrence Kudlow recently noted:
Conventional thinking has Greenspan departing in 2006 and Bush appointing Harvard economist Martin Feldstein as his successor. The former Reagan economic adviser has strong ties to the administration, dating back to Papa Bush and extending through Bush Jr.'s presidential run, when he sat on the campaign's economic policy committee. Since then he has frequently briefed both the president and vice president. As president of the National Bureau of Economic Research and a prolific writer, he enjoys considerable credibility inside the economic establishment. .....
.... Sixty-two percent of Americans think the recession began under Clinton; a plurality says it is "definitely true." Only 16 percent are certain of the fact that the recession began on Bush's watch. How can so few Americans know who was president when the most recent recession began?
The answer is simple: Conservatives have waged a successful three-and-a-half year media campaign to convince the public that the recession began under Clinton. The effort began before Bush took office; Vice President-elect Dick Cheney kicked it off with a December 3, 2000, appearance on NBC's Meet the Press:
CHENEY: There's growing evidence out there, Tim, that the economy is slowing down. We're seeing it in automobile sales and a lot of other areas, earnings falling off for corporations, and we may well be on the front edge of a recession here. ...
RUSSERT: Do you think we're on the front edge of a recession?
CHENEY: I think so. ...
Two days later, FOX News Channel political contributor and former House Speaker Newt Gingrich carried Cheney's line forward on FOX, saying, "[T]here's a danger he's going to inherit a recession."[1] On December 14, 2000, former House Majority Leader Dick Armey told CNN, "[W]hen I listen to and talk to my fellow economists, they're predicting almost with a uniform voice that this new president may inherit a recession."[2] Gingrich continued the onslaught on the December 18, declaring on FOX, "I think there is a very severe danger of a recession. And I think that the Bush-Cheney administration should be planning on having inherited a recession as the farewell gift from Clinton."[3] By the time President-elect Bush and President Clinton held a brief joint media availability on December 19, the suggestion that Bush would "inherit a recession" had already taken hold, resulting in questions from a reporter to both Bush and Clinton:
REPORTER: Mr. President-elect, talking about the economy, about problems with the economy, are you going to inherit a recession from President Clinton? And, President Clinton, what are your thoughts about that? [4]
<h3>On December 21, Philadelphia Daily News columnist Sandy Grady wrote of the Bush camp's claims that a recession was already underway:
Strange, the noisy alarms by Bush & Co. about a recession. Dubya, noting California brownouts, talks of "an energy crisis bringing on a downturn." One of his economists spoke fearfully of "softness in the economy, auto sales, signs of worry." There's spin behind their gloom: "Hey, it's Clinton's fault, not ours, if the 2001 economy goes south." So Bush was visibly uncomfortable and Clinton bemused at the first press question to Dubya: "Are you going to inherit a recession from Clinton?" </h3>
Through most of 2001, the "inherited a recession" line slowed to a trickle, though during a roundtable discussion on FOX News in March, anchor Brit Hume suggested that it was Democrats who were trying to manipulate the public's impression of when the recession began:
HUME: All right, now, let me just -- let -- all of us suggest that the deeper meaning of the argument being mounted, it's a silly economic argument, that you could talk the economy into a recession. But it -- might it work, Juan, as a way of making this the Bush recession rather than the Clinton recession inherited by Bush?
WILLIAMS: Yes, and -- but it's not silly to say you can't talk yourself into trouble, because you can lower consumer confidence. .....
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<h3>Bush cut taxes retroactively in 2001:</h3>
Quote:
http://archives.cnn.com/2001/ALLPOLI....04/index.html
Bush praises Congress for passing tax cut
May 26, 2001
WASHINGTON (CNN) -- President Bush interrupted his Memorial Day weekend to return to the White House and praise lawmakers for passing a bill that "cuts income taxes for everyone who pays them."
Bush returned from Camp David as the U.S. Senate followed the House to <h3>pass a $1.35 trillion tax cut that will take effect over the next 10 years.</h3> A major tax cut was the centerpiece of Bush's campaign.
"For this year's first installment of the tax cut, the check will literally be in the mail," Bush said, speaking of the rebate checks that will go out to taxpayers beginning next month. ....
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<h3>...and the US Treasury debt increase trend reversed...on it's way toward the current added Bush era deficit of $3.3 trillion:</h3>
Quote:
http://www.treasurydirect.gov/govt/r...t/histdebt.htm
09/30/2003 $6,783,231,062,743.62
09/30/2002 $6,228,235,965,597.16
09/30/2001 $5,807,463,412,200.06 Bush Tax Cuts begin
09/30/2000 $5,674,178,209,886.86
09/30/1999 $5,656,270,901,615.43
09/30/1998 $5,526,193,008,897.62
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<h3>IMO, The White House's own Treasury Report, Make a Convincing Argument that the Notion That "tax cuts pay for themselves"....is Ridiculous....</h3>
Quote:
http://www.treasury.gov/press/releas...july252006.pdf
Office of Tax Analysis
U.S. Department of the Treasury
A Dynamic Analysis of Permanent Extension
of the President’s Tax Relief
July 25, 2006
Executive Summary
This Report presents a detailed description of Treasury’s dynamic analysis of the President’s
proposal to permanently extend the tax relief provisions enacted in 2001 and 2003 that are
currently set to expire at the end of 2010.....
Different Components of Tax Relief Have Different Effects on the Economy
Treasury’s dynamic analysis of the President’s tax relief indicates that <h3>making the tax relief
permanent can be expected to increase the level of annual output (i.e., national income)
ultimately by about 0.7 percent....</h3>
Financing Tax Relief – Government Spending Reductions over Increased Tax Rates
The analysis reveals that the long-run effects of these policies depend crucially on whether they
are financed by lower spending or higher taxes in the future and are sensitive to assumptions on
underlying parameters. <h3>The issue of how, or even if, these policies need to be financed remains a
source of discussion among economists. The analysis presented here suggests these policies will
result in substantially more economic activity if they are financed by</h3> a future reduction in
government spending than if they are financed by future tax increases.............. (page ii )
A Dynamic Analysis of Permanent Extension of the President’s Tax Relief
1. Introduction
This Report presents a detailed description of Treasury’s dynamic analysis of the President’s
proposal to permanently extend the tax relief provisions enacted in 2001 and 2003 that are
currently set to expire at the end of 2010. These provisions include the lower tax rates on
ordinary income, the lower tax rates on dividends and capital gains, the 10-percent individual
income tax rate bracket, a doubling of the child tax credit, and a reduction in marriage tax
penalties.
Tax relief can be important when the economy is performing below its full potential, and can
increase its potential in the longer term. In 2003, real GDP was below its potential level and the
unemployment rate was elevated. The tax relief enacted in 2001 and 2003, together with
reductions in short-term interest rates by the Federal Reserve, helped stimulate economic growth
and move the economy out of the 2001 recession more quickly. Previous Treasury analysis
using the Macroeconomic Advisers macro-econometric model estimated that without the tax
relief passed in 2001, 2002, and 2003, as many as 3 million fewer jobs would have been created
by the end of 2004 and real GDP would have been as much as 3.5 to 4.0 percent lower.
....For example, the model ignores cyclical disruptions in the
employment of capital and labor, assuming instead that all resources in the economy are always
fully employed. The model includes a relatively simple representation of international capital
flows in which capital is only somewhat mobile internationally. There is no uncertainty in the
.....................(page 1 )
model and households and firms exhibit perfect foresight regarding future prices and tax rates.
These are areas for future development.
This analysis shows the likely economic effects of making the tax relief permanent. The results
indicate that the level of annual output (i.e., national income) may ultimately be higher by 0.7
percent because of the combined effects of the President’s tax relief.
The analysis also shows separately the effects of the President’s tax relief in three parts
reflecting: 1) the lower tax rates on dividends and capital gains; 2) the lower tax rates on
ordinary income (i.e., the top four rate brackets); and 3) the 10-percent tax rate bracket, higher
child tax credit, and marriage penalty relief. This decomposition reveals that the tax relief
components are likely to have very different effects on future economic activity. For example,
extending just the lower tax rates on dividends and capital gains increases output in the long run
by 0.4 percent, but when the lower tax rates for the four top income tax brackets are extended as
well, output increases by a total of 1.1 percent in the long run. Extending the remainder of the
tax relief – the 10 percent rate, the expansion of the child tax credit, and the reduction in
marriage penalties – stimulated economic activity during and immediately after the recession and
served other purposes, such as making the tax code more progressive. However, these elements
of the tax relief do not have positive growth effects in the longer term in ways that this type of
model can measure.
The analysis reveals that the long-run effects of these policies depend crucially on how they are
eventually financed and are sensitive to assumptions on underlying parameters. The issue of
how, or even if, these policies need to be financed remains a source of discussion among
economists. The analysis presented here suggests these policies will result in substantially more
economic activity if they are financed by a future reduction in government spending than if they
are financed by future tax increases. If the tax relief is financed by future tax increases – that is,
if the tax relief is temporary – it may well result in lower output in the long run. In effect, the
temporary tax relief must be paid back with interest through future tax increases, which implies
that future tax rates increase compared to current law. For that reason, the Administration has
emphasized permanence for the tax relief and spending restraint in its Budgets. The sensitivity
of the results to financing and parameter assumptions is described in detail below.......(Page 2 )
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continued from preceding quote box:
Quote:
http://www.treasury.gov/press/releas...july252006.pdf
2. Effect of the President’s Tax Relief in the Near Term
The focus of this Report is on the future economic effects of permanently extending the
President’s tax relief. As described in the introduction, the model used for this analysis assumes
that the economy is always performing at its potential. This assumption simplifies the model and
allows for a more detailed representation of household labor supply and savings behavior in both
the near term and the long run. Yet this simplification implies the model used for this report is
not able to capture the short-run stimulus that tax relief may provide when the economy is
operating below potential. Such a situation existed when the President’s tax relief was passed in
2001 and 2003; real GDP was below its potential level and the unemployment rate was elevated.
The Treasury Department previously compared how the economy would have performed if there
had been no tax relief using a different type of model that is designed to capture the interactions
of economic sectors as the economy fluctuates around its potential growth path. These models
attempt to account for changes in the level and growth of GDP, employment, inflation, and
interest rates. Short-run changes in monetary and fiscal policies are important determinants of
accelerations and deceleration of employment and output in these models. In this earlier
analysis, the Treasury Department used the Macroeconomic Advisers macroeconometric model
to estimate how the economy would have performed had there been no legislated fiscal stimulus
from 2001 through 2004. This analysis found that the tax relief increased employment and
output substantially above what would have occurred otherwise.
Specifically, Treasury found that, without enactment of the Economic Growth and Tax Relief
Reconciliation Act of 2001, the Job Creation and Worker Assistance Act of 2002, and the Jobs
and Growth Tax Relief Reconciliation Act of 2003: (1) by the second quarter of 2003, the
economy would have created as many as 1.5 million fewer jobs and GDP would have been as
much as 2 percent lower, and (2) by the end of 2004, the economy would have created as many
as 3 million fewer jobs and real GDP would be as much as 3.5 to 4.0 percent lower.
Note that the analysis described in this section estimates the economic effects that the President’s
tax relief has already had on the economy, assuming that interest rates followed the same path as
they did historically from 2001 forward. The remainder of the paper discusses the likely future
economic effects of making the President’s tax relief permanent. ..............( page 3 )
5. Description of results
As described above, results are presented assuming that the tax relief is financed either through a
future decrease in government spending or a future increase in taxes. The first year in the model
is set to be 2007. Households and firms in the tax relief simulations anticipate the future
continuation of lower tax rates after 2010 and the offsetting fiscal policy of reducing government
consumption or increasing tax rates beyond the budget window. However, the macroeconomic
effects for the first four years of the budget window (2007-2010) are generally small as tax rates
do not change between the different simulations for those years. Results are presented in Tables
3 and 4, and discussed below for only the last six years of the budget window (2011-2016) and
for the long run............................................ (page 9 )
6. Conclusion
The analysis presented in the paper suggests that permanently extending the President’s tax relief
enacted in 2001 and 2003 likely would lead to a long-run increase in the capital stock and an
increase in national output in both the short run and the long run. If the revenue cost of that tax
relief is offset by reducing future government spending, <h3>the increase in output is likely be about
0.7 percent under plausible assumptions......................</h3> (page 13 )
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Quote:
http://www.cbpp.org/7-11-06bud.htm
July 11, 2006
A SMOKING GUN: PRESIDENT’S CLAIM THAT TAX CUTS PAY FOR THEMSELVES REFUTED BY ADMINISTRATION’S OWN ANALYSIS
By James Horney
........Even if an increase in the level of economic output of 0.7 percent ultimately were to result from making the tax cuts permanent (the Treasury analysis concedes that the effect would be much smaller if the tax cuts are not paid for by cuts in spending[5]), and were to occur much sooner than Treasury seems to assume (it is not clear what the Treasury means by long-run, but it probably is considerably more than 10 years), the effect of this assumed additional economic growth would be to offset only a tiny fraction of the cost of the President’s tax cuts. <h3>For instance, a 0.7 percent increase in the economic output that the Congressional Budget Office has projected for 2016 would represent an additional $146 billion.[6] If new revenues equaled as much as 20 percent of the additional output, the increase in revenues resulting from making the tax cuts permanent (assuming Treasury’s best-case assumptions) would be $29 billion.</h3> That amount represents less than 10 percent of the $314 billion that the
Joint Committee on Taxation estimates extending the tax cuts will reduce revenues in 2016 (not counting the effects of extending Alternative Minimum Tax relief).
Thus, even if the Treasury’s most optimistic assumptions are accepted (and the dynamic effect is assumed to happen much more quickly than even Treasury seems to assume), <h2>the cost of the tax cuts in 2016 — taking into account “dynamic” effects — would still be more than 90 percent of the cost of the tax cuts under the standard cost estimates.</h2>
Quote:
http://www.nytimes.com/2005/10/11/po...=1&oref=slogin
By JASON DePARLE
Published: October 11, 2005
....But what looked like a chance to talk up new programs is fast becoming a scramble to save the old ones.
Conservatives have already used the storm for causes of their own, like suspending requirements that federal contractors have affirmative action plans and pay locally prevailing wages. And with federal costs for rebuilding the Gulf Coast estimated at up to $200 billion, Congressional Republican leaders are pushing for spending cuts, with programs like Medicaid and food stamps especially vulnerable.
<h3>"We've had a stunning reversal in just a few weeks," said Robert Greenstein, director of the Center on Budget and Policy Priorities, a liberal advocacy group in Washington. "We've gone from a situation in which we might have a long-overdue debate on deep poverty to the possibility, perhaps even the likelihood, that low-income people will be asked to bear the costs. I would find it unimaginable if it wasn't actually happening."</h3>
Mr. Greenstein's comments were echoed by Representative Rosa DeLauro, Democrat of Connecticut: "Poor people are going to get the short end of the stick, despite all the public sympathy. That's a great irony.".....
....Indeed, even as he was calling for deep spending cuts last week, Representative Mike Pence, <h2>Republican of Indiana, who leads the conservative caucus, called tax reductions for the prosperous a key to fighting poverty.</h2>
"Raising taxes in the wake of a national catastrophe would imperil the very economic growth we need to bring the Gulf Coast back," Mr. Pence said. "I'm mindful of what a pipe fitter once said to President Reagan: 'I've never been hired by a poor man.' A growing economy is in the interest of every working American, regardless of their income."
Economic growth is crucial to reducing poverty, but the effect of tax rates is less clear. In 1993, President Bill Clinton raised taxes on upper-income families, the economy boomed and poverty fell for the next seven years. <h3>In 2001, President Bush cut taxes deeply, but even with economic growth, the poverty rate has risen every year since.
In 2004, about 12.7 percent of the country, or 37 million people, lived below the poverty line, which was about $19,200 for a family of four. The figure was 7.8 percent among whites, 24.7 percent among blacks and 21.9 percent among Hispanics.</h3>
Hurricane Katrina gave those figures a face as no statistic can.
"As all of us saw on television, there is also some deep, persistent poverty in this region," with "roots in a history of racial discrimination," President Bush said in a Sept. 15 speech from New Orleans. Using the language of the civil rights movement, Mr. Bush pledged "not just to cope, but to overcome."
But liberal critics say his policies will have the opposite effect.
The week before his speech, Mr. Bush suspended the Davis-Bacon Act, a 1931 law that prohibits federally financed construction jobs from paying wages less than a local average. The administration argued that the suspension, which applied only to storm areas, would benefit local residents by stretching financial resources.
Critics said the savings would come at the expense of needy workers.
Likewise, the president suspended rules requiring federal contractors to file affirmative action plans, which his allies called cumbersome.....
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<h2>In the Budget Year Ended Sept. 30, 2000...for the first time since 1983...only $18 billion of the annual surplus Social Security Tax Collection was needed to balance the budget...then came Bush and his "Supply Side" lie....and the tax cutting began.....</h2>
Quote:
http://www.washingtonpost.com/ac2/wp...nguage=printer
Revamping Social Security
Experts Disagree on Severity of Shortfall's Consequences
By Jonathan Weisman
Washington Post Staff Writer
Sunday, January 2, 2005; Page A08
... The problem, rather, is facing the whole government, not just Social Security. When payroll taxes were last raised, <h3>in 1983, Congress knew that new revenue would be used to reduce the budget deficit, not saved to fund future obligations.</h3> But when the time came to pay back Social Security, it was understood that the burden would be shared by taxpayers and the government at large, said Dean Baker, co-director of the Center for Economic and Policy Research, who dubbed Social Security "the phony crisis" in a 1999 book by that title.
"They deliberately raised the Social Security tax, an extremely regressive tax, to supposedly pre-fund Social Security," Baker said. "If Congress had said that money would be used to fund the government, then cut from Social Security when the time came to redeem those bonds, they would have been run out of town."
"Morally, this has to be seen as a burden that falls on the general government," Baker concluded. ....
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<h3>The preceding research collides with the following propaganda to expose what this "message" from Bush, et al...is about. A relentless drive to transfer even more wealth to the republican patrons, and to drown the government in a level of debt that will destroy Social Security....the opposite of the structure set up by Greenspan's SSI "reform committee, in 1983....the goal was to raise SSI taxes to a level higher than needed to sustain the program in the near term...with the surplus collected to be used to pay down the budget deficit...putting the government in a stronger fiscal position to respond to the demands on SSI from baby boomer retirement:</h3>
Quote:
http://www.whitehouse.gov/news/relea...0060711-1.html
For Immediate Release
Office of the Press Secretary
July 11, 2006
President Bush Discusses Mid-Session Review
East Room
Fact sheet Fact Sheet: Strong Economic Growth and Fiscal Discipline Help Reduce Budget Deficit
Fact sheet In Focus: Jobs & Economy
THE PRESIDENT:....Some in Washington say we had to choose between cutting taxes and cutting the deficit. You might remember those debates. You endured that rhetoric hour after hour on the floor of the Senate and the House. Today's numbers show that that was a false choice. The economic growth fueled by tax relief has helped send our tax revenues soaring. That's what's happened.....
President's Radio Address
This week's numbers show that this is a false choice. The economic growth fueled by tax relief has helped send tax revenues soaring. When the economy grows, ...
http://www.whitehouse.gov/news/relea.../20060715.html - 23k - Cached - Similar pages - Note this
President Bush Discusses Mid-Session Review
Today's numbers show that that was a false choice. The economic growth fueled by tax relief has helped send our tax revenues soaring. ...
http://www.whitehouse.gov/news/relea...0060711-1.html - 34k - Cached - Similar pages - Note this
[ More results from www.whitehouse.gov ]
President Discusses 2007 Budget and Deficit Reduction in New Hampshire
<h3>You cut taxes and the tax revenues increase. See, some people are going to say, well, you cut taxes, you're going to have less revenue. ...</h3>
http://www.whitehouse.gov/news/relea...0060208-7.html
<h3>Remarks by the Vice President on the 2006 Agenda
The evidence is in, it's time for everyone to admit that sensible tax cuts increase economic growth, and add to the federal treasury.</h3> (Applause.) ...
http://www.whitehouse.gov/news/relea...0060209-9.html - 37k
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Quote:
http://www.c-spanarchives.org/congre...531&id=7482745
Text From the Congressional Record 2006-07-12
Mr. EMANUEL. Mr. Speaker, with very much fanfare yesterday, the President held a press conference to claim vindication for his economic stewardship and his fiscal policies.
Now, here is what Greg Mankiw, the President's former Chief Economic Adviser, said about the President's claim that his tax cuts can be paid for and actually help on the economy: `<h3>`There is no credible evidence'' that ``tax revenues rise in the face of lower tax rates.''</h3> That is the President's own economic adviser. He went on to compare an economist who says that tax cuts can pay for themselves to a ``snake oil salesman trying to sell a miracle cure.''
The Economist magazine recently wrote, ``Even by the standards of political boosterism, this is extraordinary. <h3>No serious economist believes President Bush's tax cuts will pay for themselves.''</h3>
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Quote:
http://www.federalreserve.gov/PUBS/F.../200561pap.pdf
(Page 2)
How Did the 2003 Dividend Tax Cut Affect Stock Prices?
Gene Amromin1, Paul Harrison2, Steven Sharpe3
First draft: October 11, 2005
This draft: May 29, 2006
Abstract
We test the hypothesis that the 2003 dividend tax cut boosted U.S. stock prices and thus
lowered the cost of equity. Using an event-study methodology, we attempt to identify an
aggregate stock market effect by comparing the behavior of U.S. common stock prices to
that of European stocks and real estate investment trusts. We also examine the relative
cross-sectional response of prices on high-dividend versus low-dividend paying stocks.
<h3>We do not find any imprint of the dividend tax cut news on the value of the aggregate
U.S. stock market.</h3> On the other hand, high-dividend stocks outperformed low-dividend
stocks by a few percentage points over the event windows, suggesting that the tax cut did
induce asset reallocation within equity portfolios. Finally, the positive abnormal returns
on non-dividend paying U.S. stocks in 2003 do not appear to be tied to tax-cut news.
1 Federal Reserve Bank of Chicago
2 Barclays Global Investors, San Francisco
3 Federal Reserve Board of Governors
* Corresponding author: Steven Sharpe, 20th and C St. NW, Washington DC, 20551.
ssharpe@frb.gov.
The views expressed are those of the authors and not necessarily those of the Federal
Reserve Board, the Federal Reserve Bank of Chicago, or Barclays Global Investors. We
thank Nellie Liang and John Graham for helpful comments. We are indebted to Nicholas Ryan
for his excellent and extensive research assistance.
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Last edited by host; 10-23-2007 at 12:50 AM..
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