|A new analysis by the Congressional Budget Office finds that extending the 2001 and 2003 tax cuts could result in a modest increase in the number of hours that people work. However, any “dynamic” revenue gains associated with the resulting increase in wages and salaries would pale in comparison with the cost of extending the tax cuts. |
CBO's analysis adds to the growing literature showing that tax cuts can have a modest positive impact on economic performance if they are paid for. But, it also adds to the growing literature showing that even under the best of circumstances, the additional revenue generated by economic activity stimulated by tax cuts offsets only a small percentage of the revenue loss that the tax cuts cause. If tax cuts are deficit financed, the net long-term economic effect could actually be negative, and the revenue losses could be larger, rather than smaller, than the static revenue estimates indicate.