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Supply-siders said the failure of the tax cut was that it wasn’t sufficiently targeted toward the wealthy. In the final legislation, the top rate was only reduced to 35 percent and not fully effective for five years.
A 2006 paper in the American Economic Review by University of Michigan economists Christopher House and Matthew Shapiro found that phasing-in the rate reductions actually reduced growth by causing rich people to put off economic activity into the future.
In 2003, the economy’s continued weakness caused the White House to propose another tax cut that was more oriented toward supply-side thinking. The key elements were a reduction in the tax rate on capital gains and dividends to 15 percent. The tax cut on dividends was especially large since they had previously been taxed as ordinary income at rates as high as 39.6 percent; capital gains had previously been taxed at a 20 percent maximum rate.
Subsequent research by Federal Reserve economists has found little, if any, impact on growth from the 2003 tax cut. The main effect was to raise dividend payouts. But companies cut back on share repurchases by a similar amount, suggesting that only the form of payouts changed. (See here, here, and here.)
Moreover, according to a study by Steven Bank of the UCLA law school, the fact that the dividend tax cut was temporary was a key motivation for higher dividend payouts; had the dividend tax cut been permanent, as the supply-siders favored, the impact probably would have been much less.
The mediocre economic and employment growth of the Bush years is still a bad memory for most voters.
http://www.thefiscaltimes.com/Columns/2010/09/17/Bush-Tax-Cuts-No-Economic-Help.aspx#page1
A 2006 paper in the American Economic Review by University of Michigan economists Christopher House and Matthew Shapiro found that phasing-in the rate reductions actually reduced growth by causing rich people to put off economic activity into the future.
In 2003, the economy’s continued weakness caused the White House to propose another tax cut that was more oriented toward supply-side thinking. The key elements were a reduction in the tax rate on capital gains and dividends to 15 percent. The tax cut on dividends was especially large since they had previously been taxed as ordinary income at rates as high as 39.6 percent; capital gains had previously been taxed at a 20 percent maximum rate.
Subsequent research by Federal Reserve economists has found little, if any, impact on growth from the 2003 tax cut. The main effect was to raise dividend payouts. But companies cut back on share repurchases by a similar amount, suggesting that only the form of payouts changed. (See here, here, and here.)
Moreover, according to a study by Steven Bank of the UCLA law school, the fact that the dividend tax cut was temporary was a key motivation for higher dividend payouts; had the dividend tax cut been permanent, as the supply-siders favored, the impact probably would have been much less.
The mediocre economic and employment growth of the Bush years is still a bad memory for most voters.
http://www.thefiscaltimes.com/Columns/2010/09/17/Bush-Tax-Cuts-No-Economic-Help.aspx#page1