TAX CUTS A BLUNT INSTRUMENT FOR ECONOMIC STIMULUS, FINDS CRS REPORT.

DONALD W. KIEFER SENIOR SPECIALIST IN ECONOMIC POLICY OFFICE OF SENIOR SPECIALISTS

January 2, 1991

SUMMARY

Recently released statistics indicating that the economy is still stalled have led to widespread discussion of using a tax cut, and perhaps a tax rebate, to try to stimulate economic growth early in 1992. It is appropriate, therefore, to review the record of earlier counter-cyclical fiscal policies. That is the purpose of this report.

Counter-cyclical fiscal policy enjoyed its heyday in the United States during the 1960s and 1970s. The so-called Kennedy tax cut was passed in 1964 to stimulate economic growth. The 1968 surtax, sometimes referred to as the Vietnam War surtax, was enacted to raise revenue, slow the economy down and relieve inflationary pressures. While a surtax is the opposite of a tax cut, the economic principles behind the two policies are the same. In 1975, another tax cut -- this one including a tax rebate -- was adopted to stimulate the economy out of a deep recession.

Several policy implications derive from the history of the earlier counter-cyclical fiscal policies reviewed in this report.

First, if a tax cut is adopted in 1992, it is unlikely to be implemented in time to offset the current recession. While predicting economic turning points is notoriously difficult, the current recession is widely expected to be over by mid-summer. If this expectation proves to be accurate, even with expedited congressional consideration, a new tax cut probably would go into effect at about the time the economy would turn upward on its own.

Second, in the short-run period when the effect of a tax cut is desired, a permanent tax decrease has more effect than a temporary tax cut which, in turn, has more effect than a tax rebate. In the first year, a rebate probably has no more than half the stimulative effect of a permanent tax reduction of comparable magnitude.

Third, the effects of a tax cut grow slowly, peaking in the second or third year after implementation when economic stimulus may or may not be needed (or appropriate).

Fourth, the magnitude of the peak effects of a tax cut, in terms of the increase in real GNP, may be about equal to or somewhat smaller than the size of the tax cut itself.

Some observers may draw the conclusion from these implications that a tax cut should not be adopted to counteract the recession. But if some further anti-recessionary policy is considered beneficial in 1992, the option of a tax rebate may bear consideration. Its prospect of effectively countering the recession is limited but it probably would do the least damage to the longer-term effort to reduce the Federal budget deficit.

TABLE OF CONTENTS

I. MEASURING THE ECONOMIC EFFECTS OF PREVIOUS POLICIES: TWO

Recently released statistics indicating that the economy is still stalled have led to widespread discussion of using a tax cut to try to stimulate economic growth early in 1992. President Bush and his advisors are reported to be developing an economic stimulus package to be presented in the State of the Union Message, and are reported to be considering a tax "rebate" of up to $300 per taxpayer. ¹ A tax rebate is an immediate payment to taxpayers (or reduction in tax liability), ostensibly as a return of taxes previously paid.

It has been over a decade since there has been any serious discussion in the United States of counter-cyclical fiscal policy -- that is, increases or decreases in the budget deficit to stimulate or restrain the economy on a short-term basis, sometimes referred to as macroeconomic "fine tuning." ² Counter-cyclical fiscal policy enjoyed its heyday in the United States during the 1960s and 1970s. The so-called Kennedy tax cut was passed in 1964 to stimulate economic growth. The 1968 surtax, sometimes referred to as the Vietnam War surtax, was enacted in part to slow the economy down and relieve inflationary pressures. While a surtax is the opposite of a tax cut, the economic principles behind the two policies are the same. In 1975, another tax cut -- this one including a tax rebate -- was adopted to stimulate the economy out of a deep recession. By the end of the 1970s, however, counter-cyclical fiscal policy had fallen out of favor, partly because of changes in the economy but also because these policies, especially the latter two, did not work as well as expected.

During the 1980s, counter-cyclical fiscal policy objectives played almost no role in the development of tax or budget policy. A large tax cut was passed in 1981 at the beginning of a deep recession, but short-term anti-recessionary stimulus was not its purpose. Its goal was higher long-term growth through reduced tax disincentives. Only a small part of the tax cut became effective immediately; most of it was phased in over a three-year period. This tax cut, higher spending, and the 1981-82 recession resulted in a very large Federal budget deficit. Tax and spending policy throughout the remainder of the decade was driven largely by the effort to reduce this deficit rather than by counter-cyclical concerns. ³

Using a tax cut to stimulate the economy is once again being discussed. It is appropriate, therefore, to review the record of the earlier fiscal policy actions. That is the purpose of this report. Prior to reviewing the earlier policies, however, two important observations should be made regarding measuring the economic effects of previous policies.

I. MEASURING THE ECONOMIC EFFECTS OF PREVIOUS POLICIES: TWO OBSERVATIONS

In reviewing and evaluating research on the economic effects of previous policies, it is useful to bear in mind two facts: 1) it is not possible to measure the effects of most policies precisely, and 2) the measured effects depend on the economic model used for the measurement. Therefore, there is much less difference between measuring the effects of past policies and estimating the potential effects of future policies than many people realize.

A. The Effects of Most Previous Policies Cannot be Measured Precisely

It may seem that ascertaining the economic effects of a past policy should be relatively straightforward. After a policy has been implemented, there should be a record which can be examined to determine its effect. In fact, however, measurement of the effects of past policies is only slightly less difficult and uncertain than estimating the effects of prospective policies.

In estimating the effects of a prospective policy the researcher uses an economic model to forecast two alternative paths of the economy: one assuming the policy is adopted, the other assuming it is not adopted. ⁴ The difference between the two paths is the estimated policy effect. Alternatively, the policy effect may be estimated directly; in this case, the two economic paths are estimated implicitly.

In analyzing a previous policy the researcher is not forecasting economic paths into the future, but studying a historical period in which the economy's actual path is known. But only one economic path is known: the path the economy followed after adoption of the policy. The path the economy would have followed in the absence of the policy, and therefore the effect of the policy, is unknown and can be estimated only through use of an economic model. It is in this sense that analysis of past policies resembles analysis of potential policies; in both cases the policy effect is estimated by an economic model. ⁵

B. The Estimated Effects of Previous Policies Depend on the Economic Model Used for the Measurement

Because the effects of previous policies must be estimated using an economic model, the measured effects depend on the model used in the analysis. This point is perhaps obvious from the discussion above, but it is worth emphasizing. The research on the effects of the three fiscal policies reviewed here spans the period from the mid-1960s to the late-1970s, a period during which macroeconomic theory and its application to policy analysis advanced substantially, to some extent because of lessons learned (and relearned) in studying these policies.

The influence of Keynesian economics was at its peak during the early 1960s. The theory that enjoyed the widest support held that fiscal policy had powerful and nearly immediate effects, that the size and timing of a fiscal policy initiative could be adjusted to have almost exactly the intended effects, that the specific structure of a tax cut or spending program had little influence on its aggregate effects, and that the influence of monetary policy was limited. These beliefs led many economists to maintain that fiscal policy could (and should) be used to counter the business cycle. Some economists even went so far as to suggest that the business cycle had effectively been "repealed" and that we never again need suffer the effects of a recession (or at least anything but a very mild recession).

Today, fiscal policy is understood to be less powerful than was commonly believed in the early 1960s and to operate with fairly long lags. The effects of a fiscal policy initiative are thought to depend significantly on its structure. There is a greater appreciation of the difficulties of tailoring the size and timing of fiscal policies. Furthermore, monetary policy is now more widely understood to have powerful macroeconomic effects, probably more powerful than fiscal policy. Many economists would now argue that monetary policy is better suited to short or intermediate-term stabilization objectives (although most economists also would probably argue that the primary objectives of monetary policy should be determined by long-run considerations) and that fiscal policy should be focused on long-term growth and allocation objectives.

Consistent with these developments in economic theory, some of the early evaluations of the fiscal policies reviewed here found them to have large and immediate effects; the later evaluations tended to find smaller and more protracted effects.

II. THE HISTORICAL PRECEDENTS AND RESEARCH ON THEIR EFFECTS

The three major counter-cyclical fiscal policies implemented during the 1960s and 1970s -- the 1964 tax cut, the 1968 surtax, and the 1975 tax cut -- were the subject of much economic research. These policies and the research on their effects are summarized here. ⁶

Most of the research on these policies was concerned primarily with their effects on aggregate consumption for at least two reasons. First, the largest portion of each of the three fiscal actions was intended to affect consumption, and so the success of the policies depended heavily on this effect. Second, at least in the early studies, the consumption effect was assumed to be substantially quicker and probably larger than the effect on investment. Since the purpose of stabilization policies is usually to affect the economy quickly, the consumption effect was of crucial concern. For this reason, the discussion here focuses on effects on GNP and consumption.

A. The 1964 Tax Cut

The 1964 tax cut is perhaps the most widely known example of counter-cyclical fiscal policy in the United States. It is frequently referred to as the Kennedy tax cut even though it was not adopted until after President Kennedy's death.

In the January 1963 State of the Union address, President Kennedy first proposed a broad program of tax reduction to stimulate economic growth. The tax cut was not adopted immediately; it became law in March 1964 during the initial months of President Johnson's tenure. The Revenue Act of 1964 reduced individual income tax rates across the board from a range of 20 percent to 91 percent to a lower range of 14 percent to 70 percent. The tax cut was phased in in two stages, the first in 1964 and the second in 1965. The corporate income tax rate was reduced from 52 percent to 50 percent in 1964 and to 48 percent in 1965. The investment tax credit, which had been adopted in 1962, was also made more generous by removing the requirement that the depreciable basis of benefiting assets had to be reduced by the amount of the credit. In total, the tax cut reduced taxes approximately $8.3 billion (1.3 percent of GNP) in 1964 and $12.3 billion (1.7 percent of GNP) in 1965.

There are five studies of the effects of the 1964 tax cut. The first three studies, published during the 1960s, found fairly strong and immediate effects, with the impact on GNP substantially exceeding the initial size of the tax cut. The last two studies, published in the late 1970s and using more fully developed economic models, estimated smaller effects and longer time lags. The peak effect of the fiscal policy on real GNP in these studies was either only slightly greater, or actually less, than the size of the tax cut itself.

The first study of the 1964 tax cut was by Arthur Okun, who estimated that the tax cut increased GNP by $17 billion by the end of 1964, by $30 billion by the end of 1965, and that the total effect of the tax cut ultimately reached $36 billion. ⁷ GNP multipliers ⁸ calculated from Okun's estimates equal about 1.4 at the end of 1964, 2.3 at the end of 1965, and 2.8 for the ultimate effect. ⁹ The two other studies of the effects of the 1964 tax cut published in the 1960s estimated effects that were the same order of magnitude as Okun's estimates. A study by Ando and Brown estimated somewhat larger effects; ¹⁰ a study by Klein estimated somewhat smaller effects. ¹¹

The two later studies of the 1964 tax cut were performed by Wharton Econometric Forecasting Associates (Wharton) and Data Resources, Inc. (DRI) employing more fully developed economic models. ¹² The studies found that the economic effects of the tax cut grew slowly, reaching full magnitude two to three years after the tax cut was adopted. Furthermore, the peak effect of the fiscal policy on real GNP was either only slightly greater, or actually less, than the size of the tax cut itself. The studies also found that the tax cut had significant favorable effects on unemployment but significant unfavorable effects on the inflation rate. Hence, the nominal and real (inflation adjusted) effects of the tax cut were found to be significantly different in these studies. GNP multipliers based on estimates in the studies are shown in table 1.

The Wharton study found that the 1964 tax cut achieved a real GNP multiplier slightly in excess of 1 in 1966, but then the effect diminished.

                                Table 1

B. THE 1968 SURTAX

A 6-percent income tax increase was first proposed by President Johnson in his 1967 State of the Union message, and a 10-percent surtax was first proposed by the President in August 1967, some time after it became apparent that the "guns and butter" budgetary policies during the buildup of the Vietnam war effort were overheating the economy and increasing inflation. The Revenue and Expenditure Control Act was debated heatedly in Congress and finally adopted in June 1968. It imposed a 10-percent surcharge on individual and corporate income taxes through June 30, 1969. The corporate surcharge was retroactive to January 1, 1968, and the personal surcharge was retroactive to April 1, 1968. In early 1969, the surtax was extended at the 10-percent rate through the remainder of 1969 and at a 5-percent rate through the first half of 1970. During 1969, the year of its full effect, the surtax increased Federal income tax revenues approximately $13 billion (1.35 percent of GNP).

A surtax is, of course, not a tax cut. It is, however, a counter-cyclical fiscal policy used to affect the economy in much the same way (though in the opposite direction) as a tax cut. Hence, the surtax experience is part of the historical record that should be reviewed in considering a new tax cut.

It became apparent soon after its enactment that the surtax was not having the expected effect. The surtax was supposed to reduce the intensity of GNP growth, diminish the strength of consumption and investment, decrease the inflation rate, and lead to an increase in unemployment. In fact, however, consumption continued strongly and the savings rate decreased. Business investment retained its strength. GNP growth, in both nominal and real terms, continued unusually strong, and for over a year after adoption of the surtax, inflation accelerated and unemployment continued to decline.

The effort to explain the ineffectiveness of the surtax led to an outpouring of economic research. While this research contained the usual amount of disagreement and debate, several lessons eventually became clear.

First, research on the effects of the surtax led to the fuller integration of modern consumption theory into fiscal policy analysis. ¹³ The surtax was based on the assumption that temporary tax changes would have the same, or very similar, economic effects as a permanent change in income. This assumption, however, is inconsistent with life-cycle/permanent income consumption theory, which holds that current consumption by an individual is a function of his estimated total lifetime ability to consume, which is determined not only by current income but also future income and wealth. ¹⁴ This theory explains, for example, the tendency of young people in their early working years to consume more than they earn and the tendency of middle-aged individuals to save for retirement. An implication of the theory is that a temporary change in income, whether an increase or a decrease, should be expected to have little effect on current consumption because it has only a small effect on an individual's lifetime income.

Taking fuller account of consumption theory in fiscal policy analysis had two implications. First, the lags expected in the effect of a tax change are now considerably longer than was the case in the early 1960s. Second, there is now wide agreement that a temporary tax policy change will have less economic effect than a permanent change. Several authors suggested that temporary tax changes might be roughly 50 percent as effective as permanent tax policy changes. ¹⁵

A second result of the research on the 1968 surtax was the finding that its effects were partially offset by other policy actions and unforeseen events. Both Government expenditure policy and monetary policy turned expansionary (or became more so) during the initial phase of the surtax. Additionally there were unanticipated increases in demand for automobiles and in investment in some sectors, for example regulated utilities and construction. ¹⁶

Third, even allowing for the other factors, the effect of the surtax on the economy was relatively small. The real GNP policy multiplier apparently began at a very low level, peaked toward the end of the surtax, and never rose as high as one. ¹⁷

Fourth, unrealized at the time, the prolonged debate over the upcoming tax increase may have induced taxpayers to change behavior prior to the imposition of the surtax. This factor may have contributed to the impression that the actual impact of the surcharge was weak or, in some regards, even perverse. ¹⁸

C. THE 1975 TAX CUT

In 1975, the most temporary of all tax policies was enacted: a tax rebate. When the severity of the 1975 recession became apparent, policy makers sought a fiscal policy to stimulate the economy as quickly as possible. They chose a combination of a tax rebate and a temporary tax cut originally adopted for only one year.

The enactment of the 1975 tax cut provides an illustration of another difficulty in using counter-cyclical fiscal policy (in addition to achieving the desired size and timing of the policy effects): it is frequently impossible to know the stage of the business cycle early enough and to design and implement legislation quickly enough to offset the economic fluctuation.

The state of the economy was debated throughout 1974; some people maintained the economy was overheating and that policy should be adopted to slow it down. Others believed it was slipping into recession. In October 1974 President Ford, siding with the first group (which was probably the majority of observers at that point), proposed a surtax to curb inflationary pressures. It soon became clear, however, that the economy was, in fact, sliding into a deep recession. In January 1975, President Ford recommended a tax cut to stimulate the economy out of the recession. It was enacted quickly; the President signed the tax cut legislation on March 29, 1975, only 10-1/2 weeks after recommending it.

Despite the speed with which the 1975 tax cut was enacted, however, its implementation came after the recession had ended. With the advantage of hindsight and data that were unavailable concurrently, the recession was eventually dated as lasting from November 1973 to March 1975. The initial implementation of the tax cuts under the legislation did not occur until May 1975. Hence, the recession ended before the tax cut was put into effect.

The largest single element of the Tax Reduction Act of 1975 was a rebate of 10 percent of 1974 tax payments, paid during the second quarter of 1975. The rebate had a minimum value of the lesser of $100 or actual 1974 tax liability; the maximum value was $200, and the maximum phased down to $100 as adjusted gross income rose above $20,000 to $30,000. The legislation also included a $50 cash payment to recipients of Social Security or Railroad Retirement benefits, most of whom otherwise would not have received the rebate. Additionally, the standard deduction was increased and a $30 per exemption general credit was adopted. More narrowly focused provisions included the earned income credit, a larger child care deduction, and a 5 percent credit for the purchase of a new house.

The Tax Reduction Act also increased the investment tax credit from 7 percent (4 percent for public utilities) to 10 percent, and for the first time allowed the credit on construction progress payments. The corporate surtax exemption was raised to $50,000 and the tax was reduced on the first $50,000 of corporate income. The total fiscal package amounted to approximately $23 billion in 1975 (1.44 percent of GNP). With the exception of the rebate and the home purchase tax credit, the tax cuts were extended, amended, expanded, and finally made permanent by several tax acts during 1975 through 1978.

The first study of the effects of the 1975 tax cut by Juster found no evidence of differences in the effects of temporary and permanent tax changes, but indicated that even permanent tax changes affect consumption slowly. ¹⁹ Two other studies by Modigliani and Steindel ²⁰ and by Blinder, ²¹ however, concluded that the rebate had a substantially slower effect on consumption than a permanent tax cut would have. Blinder's conclusion, for example, was that, "over a 1-year planning horizon, a temporary tax change is estimated to have only a little more than half as much impact as a permanent tax change of equal magnitude, and a rebate is estimated to have only about 38 percent as much impact." ²²

D. EPILOGUE

In 1977, President Carter proposed legislation to continue and further expand the 1975 tax cut. Of the $31.6 billion proposed tax cut, $11 billion was to be in the form of a $50-per-person rebate. The rebate quickly came under criticism in the Congress and elsewhere for a variety of reasons, one of which was that it would not be a very effective economic stimulus. After its passage became doubtful in the Senate, President Carter dropped the rebate from the tax cut proposal.

III. POLICY IMPLICATIONS

Several policy implications derive from this history of the earlier counter-cyclical fiscal policies.

First, if a tax cut is adopted in 1992, it is unlikely to be implemented in time to offset the current recession. While predicting economic turning points is notoriously difficult, the current recession is widely expected to be over by mid-summer. If this expectation proves to be accurate, even with expedited congressional consideration, a new tax cut probably would go into effect at about the time the economy would turn upward on its own.

Second, in the short-run period when the effect of a tax cut is desired, a permanent tax decrease has more effect than a temporary tax cut which, in turn, has more effect than a tax rebate. In the first year, a rebate probably has no more than half the stimulative effect of a permanent tax reduction.

Third, the effects of a tax cut grow slowly, peaking in the second or third year after implementation when economic stimulus may no longer be needed (or appropriate).

Fourth, the magnitude of the peak effects of a tax cut, in terms of the increase in real GNP, may be about equal to or somewhat smaller than the size of the tax cut itself.

Some observers may draw the conclusion that a tax cut should not be adopted to counteract the recession. On the other hand, there may be times when doing nothing is not a realistic policy option. The electorate may demand some visible policy response to a widely felt problem whatever the limitations of policy in addressing the problem. At such times, the policy objective may be to choose the policy which has the greatest chance of doing some good or, if that is not possible, to choose the policy which will do the least harm. If 1992 is such a time for anti-recessionary policy, a tax rebate may bear consideration. Its promise of effectively countering the recession is limited, but it probably would do the least damage to the longer-term effort to reduce the Federal budget deficit.

² Use of monetary policy to attempt to make short-term adjustments in the economy is also referred to as fine tuning.

³ It should be acknowledged that there were no severe economic cycles to counter during this period. While the GNP growth rate rose and fell during the decade, there were no recessions after the 1981- 82 downturn. Furthermore, after double-digit inflation was brought under control early in the decade, price increases did not again accelerate dramatically.

⁴ In analysis of microeconomic policies, the forecasts would be of a sector of the economy or of some specific economic activity, but the concept is the same.

⁵ A similar point is made regarding revenue estimates for tax legislation in Sunley, Emil M., and Randall D. Weiss, The Revenue Estimating Process, Tax Notes, June 10, 1991, p. 1306.

⁶ This summary is based on an earlier CRS report that provides a more detailed summary of the research on the effects of the fiscal policies; see: U.S. Library of Congress, Congressional Research Service, A Review of the Research on the Economic Effects of the 1964 Tax Cut, the 1968 Surtax, and the 1975 Tax Cut, Report No. 80-135 E by Donald W. Kiefer, July 1980, 57 p.

⁷ Okun, Arthur M., Measuring the Impact of the 1964 Tax Reduction, [in] Heller, Walter W., Ed., Perspectives on Economic Growth, Random House, Inc., New York, 1968, p. 27-49.

⁸ The GNP multiplier equals the magnitude of the effect of the tax cut on GNP divided by the size of the tax cut.

⁹ Okun did not differentiate between nominal and real effects of the tax cut; he argued that the inflation effects were insignificant.

¹⁰ Ando, Albert and E. Cary Brown, Personal Income Taxes and Consumption Following the 1964 Tax Reduction, [in] Ando, Albert, E. Cary Brown, and Ann F. Friedlaender, Eds., Studies in Economic Stabilization, The Brookings Institution, Washington, D.C., 1968, p. 117-137.

¹¹ Klein, Lawrence R., Econometric Analysis of the Tax Cut of 1964, [in] Duesenberry, James S., Gary Fromm, Lawrence R. Klein, and Edwin Kuh, Eds., The Brookings Model: Some Further Results, Rand McNally & Company, Chicago, 1969, p. 460-472.

¹² The two studies are published in the same document: Data Resources, Inc., Fiscal Policy: The Scoreboard Between 1962 and 1976, p. 11-59; and, Wharton Econometric Forecasting Associates, Inc., A Study in Counter-Cyclical Policy, p. 61-147, [in] Economic Stabilization Policies: The Historical Record, 1962-1976, published jointly by the House Committee on the Budget, the Joint Economic Committee, and the Congressional Research Service, 95th Congress, 2nd Session, November 1978, 197 p.

¹³ See especially: Eisner, Robert, Fiscal and Monetary Policy Reconsidered, The American Economic Review, December 1969, p. 897- 905; and Eisner, Robert, What Went Wrong?, Journal of Political Economy, May/June 1971, p. 629-641.

¹⁴ Seminal contributions to the development of this theory were made by, Ando, Albert and Franco Modigliani, The "Life-Cycle" Hypothesis of Saving: Aggregate Implications and Tests, The American Economic Review, March 1963, p. 55-88; and Friedman, Milton, A Theory of the Consumption Function, National Bureau of Economic Research, Princeton, 1957.

¹⁵ See, Blinder, Alan S. and Robert M. Solow, Analytical Foundations of Fiscal Policy, [in] The Economics of Public Finance, The Brookings Institution, Washington, D.C., 1974, p. 3-115; Springer, William L., Did the 1968 Surcharge Really Work?, The American Economic Review, September 1975, p. 644-659; and Branson, William H., The Use of Variable Tax Rates For Stabilization Purposes, [in] Musgrave, Richard A., Ed., Broad-Based Taxes, The Johns Hopkins University Press, Baltimore, 1973, p. 267-285.

¹⁶ See, Blinder and Solow (cited in footnote 15), and Klein, Lawrence R., An Econometric Analysis of the Revenue and Expenditure Control Act of 1968-69, [in] Smith, Warren L. and John M. Culbertson, Eds., Public Finance and Stabilization Policy, North-Holland Publishing Company, Amsterdam, 1974, p. 333-353.

¹⁷ See, Data Resources, Inc. (cited in footnote 12), and Okun, Arthur M., The Personal Tax Surcharge and Consumer Demand, 1968-1970, Brookings Papers on Economic Activity, 1:1971, p. 167-204. Okun argued that the surtax was more effective than others had concluded, but his estimates implied a GNP multiplier of only 0.71 at the end of the second year of the surtax.

¹⁸ Dunkelberg, William C. and Richard L. Peterson, Consumer Anticipation of Federal Income Tax Changes, Journal of Macroeconomics, Spring 1979, p. 191-208.

¹⁹ Juster, F. Thomas, A Note on Prospective 1977 Tax Cuts and Consumer Spending, Tax Aspects of President Carter's Economic Stimulus Program, Hearings before the Committee on Ways and Means, 95th Congress, 1st Session, February 2-9, 1977, p. 60-68.

²⁰ Modigliani Franco, and Charles Steindel, Is a Tax Rebate an Effective Tool For Stabilization Policy?, Brookings Papers on Economic Activity, 1:1977, p. 175-209.

²¹ Blinder, Alan S., Temporary Income Taxes and Consumer Spending, Journal of Political Economy, February 1981, p. 26-53; the quotation is from p. 47.

²² An analysis of the 1975 tax cut by Data Resources, Inc. (cited in footnote 12) concluded that its effects were large and immediate. The results of the study are inconsistent with those of other studies and DRI's own studies of earlier fiscal policies, however, and therefore must be regarded as suspect. See the more extensive discussion in the earlier CRS report cited in footnote 6, p. 53-56.