In evaluating the impact of tax cuts on the economy, one must include both any potential positive effects from reducing marginal tax rates and the negative effects from reducing national saving. The overall impact of a tax cut on the economy thus is not necessarily positive. To determine whether tax cuts would raise or lower national productive capacity, one must look at estimates of the size of these offsetting effects.

The Bush tax plan would reduce the average statutory marginal tax rate (that is, the average tax rate applying to the last dollar earned in the economy) by roughly three percentage points relative to the current di

stribution of tax rates. Estimating the impact on the economy of this reduction in marginal tax rates is subject to substantial uncertainty. Marginal tax rate reductions could affect a variety of activities important to the economy, including work behavior, saving and investment, and risk-taking. A reduction in marginal tax rates may discourage work, by increasing the after-tax income of workers and therefore potentially inducing them to reduce their work effort (since they can achieve the same amount of after-tax income with less work effort). A reduction in marginal income tax rates could encourage you to save less, since the rate of return you earn would be higher and thus you could accomplish your goal with a lower saving rate. The impact of reducing marginal tax rates on entrepreneurship is hard to measure and therefore poorly understood, so there is little evidence to contradict the claims that are made about the deleterious effects of the tax system in this area...Yet there is also no hard evidence demonstrating that the potential economic benefits in this area are large.

The tax cutting plan is supposed to have positive revenue effects because of its economic benefits but, There is no clear link between periods of low taxes and high growth. Cuts h

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