Baccalauréat Section Européenne, session juin 2001
Discipline Non linguistique: Sciences Economiques et Sociales
Preparation : 20 minutes
Oral exam : 20 minutes, 10 minutes to answer the question, and 10 minutes for discussion.Using the document and your knowledge, make a structured answer of the following question.
Subject n°2 :
|
What are the expected effects of
a tax cut?
Should the EU do the same as the USA have done? |
(…) The Senate passed its version of the tax bill on May 23rd, after two days of filibuster by amendment, where Democratic senators repeated their accusation that the package was excessively tilted towards the rich.
(…)
The Senate tax cut is smaller ($1.35 trillion over 11 years rather than the $1.6 trillion Mr Bush wanted and the House passed). The top tax rate (currently 39.6%) would fall to 36% under the Senate proposal, compared with 33% in the House version. The Senate version offers more to lower-income Americans (for instance, it makes the child tax credit partly refundable), and it includes education and pension tax breaks dear to Democratic senators. It also offers $100 billion in a short-term fiscal stimulus-something not in Mr Bush's original plan, but a goal he now touts ceaselessly.
(…) It would still represent a remarkable political achievement for Mr Bush. The largest tax cut since Ronald Reagan will have been passed in less than five months, despite the slimmest of congressional majorities and widespread public apathy. Opinion polls show most Americans want tax cuts, but not as much as they want better schools or cheaper petrol. Equally remarkable, the tax cut has escaped disfigurement from business lobbyists looking for special-interest tax breaks.
(…)
The Bush team also had some outside help. The jump announced in January in the projections of the ten-year surplus (from a cumulative total of $4.6 trillion to $5.6 trillion) made it increasingly hard to argue-at least within the parameters of the Washington debate-that tax cuts were unaffordable. Alan Greenspan's public support was another big boost.
(…)
All this politicking has tended to obscure whether the tax cut makes economic sense. The current package might be said to be an accountant's tax cut rather than an economist's one. It is defined by the arbitrary numbers of a ten-year horizon for the budget surplus. These numbers alone are dubious: few Washington realists regard the projected levels of government spending as tenable. Looking beyond the ten-year horizon, towards the retirement of millions of baby boomers, the tax cut looks increasingly imprudent.
(…)
Economists tend to judge tax policy on its efficiency (how little a tax distorts economic activity), equity and simplicity. Democrats have spent a lot of time arguing that this package is unfair. Less noticed is that the tax package does surprisingly badly on the other two criteria.
(…)
May 24th 2001 from The Economist