The economy still fighting its way out of recession. If Congress wants to stimulate economic growth, studies show that tax cuts are a much more powerful stimulant than direct government spending. Further, lower tax rates provide important economic benefits.

Christina Romer, Obama’s own former economic adviser, has concluded that “tax increases are highly contractionary.” Romer also concludes tax cuts produce a multiplier of three, meaning a dollar of lowered taxes boosts gross domestic product (GDP) by $3. (1)

Generally, lower tax rates help spur the economy in the long run by improving the incentives to work, produce and save, and by reducing a variety of other economic distortions associated with high tax rates. (2)

• High tax rates interfere with the economic decisions of households and businesses in many ways.
• They induce individuals to work less, to undertake different jobs and entrepreneurial activities, to receive their compensation in different forms, and to reduce saving and investment.
• Increasing taxes now will undermine economic recovery, choke off job creation, and take money out of the hands of the individuals and businesses that create jobs, spur investment, boost consumption, and promote economic growth.

Accordingly, the Chamber supports making permanent all of the 2001 and 2003 tax cuts.

1 -- Romer & Romer, The Macroeconomic Effects Of Tax Changes: Estimates Based On A New Measure Of Fiscal Shocks, June 2010

2 -- Tax Foundation, The 2001 and 2003 Tax Relief: The Benefit of Lower Tax Rates, http://www.taxfoundation.org/news/show/23534.html