Prepared for Tax Policy Lessons from the 2000s,

The chapter by Nada Eissa provides a timely evaluation of tax cuts on labor income during the Presidency of George W. Bush. The cuts were moderate in size and extended across the income distribution. Eissa calculates that legislation enacted in 2001, 2002 and 2003 lowered marginal federal income tax rates by 2.6 percentage points, on average across households, and lowered average income tax rates by 2.7 percentage points. One goal of the chapter is to gauge the likely impact of these tax cuts on labor supply. Some of the evidence reviewed by Eissa suggests that the Bush tax cuts had a very modest effect on labor supply. According to the illustrative calculations in Table III, for example, the Bush tax cuts raised hours worked by a mere 9 hours per person (23-59 years old) per year. These calculations neglect heterogeneity among workers in tax changes and response behavior, and they do not disentangle responses on the hours and employment margins. Whether – and how much – these simplifications understate the overall response of hours worked to the Bush tax cuts is unclear. The chapter acknowledges these issues but it does not tackle them directly. Other evidence suggests that labor supply is highly responsive to taxes for some demographic groups on some margins. Thus, Eissa writes in her conclusion that a “careful read of the evidence … suggests that labor market entry and exit is very sensitive to taxes, especially for female household heads but also for married women. ” Eissa also notes that labor supply responses to taxes are not limited to the decision of how many hours to work and whether to get a job