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Summary:
Congress is considering a short-run fiscal stimulus package which may include tax reductions. In recent years, three different types of short run fiscal stimulus measures have been enacted: an individual income tax rebate in 2001, a temporary investment incentive (bonus depreciation) in 2002, and dividend relief in 2003. Some analysis suggests that the cash rebate was an effective stimulus, bonus depreciation had a smaller effect, and, on theoretical grounds, dividend relief was unlikely to provide an effective stimulus. Congress is currently considering a short-run stimulus package which may include tax reductions, such as an individual tax rebate or investment incentives. Several types of tax cuts were partially or fully enacted for purposes of short run economic stimulus in the recent past (2001-2003). These tax revisions were the first in some time that were motivated, at least in part, by the need for expansionary fiscal policy. In the late 1990s, the economy experienced a protracted period of significant growth, and, in the decade prior to that most tax legislation addressed a need for deficit reduction (the objective of most tax change between 1982 and 1997, as was the case in the 1990 and 1993 tax changes) or a desire for structural change (in the 1986 and 1997 tax revisions).1 Very different types of stimulus provisions were enacted in the period 2001-2003: the 2001 tax cut was aimed at individuals, but most of its provisions, especially the rate cuts, which were phased in over a number of years, were not based on the recession that was apparent in 2000 and that appeared in the spring of 2001. When concerns about the
