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White House: Tsx relief softens recession

WASHINGTON, Feb. 15 (UPI) -- President Bush's Council of Economic Advisers rolled out Friday a White Paper on last year's tax relief legislation, saying rebates and reductions in withholding stimulated the economy and softened the recession by boosting consumer purchasing power during a period of sluggish economic activity.

Economic growth in the third-quarter would have been worse, contracting at a 2.5 percent annual rate rather than the reported 1.3 percent rate, without the measures, they said, while gross domestic product in the fourth quarter would have dipped 1 percent instead of the advance estimate of 0.2 percent growth.

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"The short-run economic growth effects of the Tax Relief Act have been significant -- without this tax relief, the 2001 recession would have been deeper and longer," the council said.

Quantitatively the rebate checks -- some $36 billion sent back to taxpayers in the second half of 2001 -- and reduced taxpayer liabilities totaled $57 billion in 2001 and $69 billion in 2002. Included in those figures are the reduction in the marriage penalty for earned income credit recipients and the initial increase in the child credit allowed.

"In sum, the president and Congress delivered important tax relief in 2001, giving a welcome boost to jobs and income," the advisers said in a release. "As a consequence, the recession -- which the National Bureau of Econo9mic Research dated as having stared in March 2001 -- has been more mild and will likely turn out to be shorter than it otherwise would have been without the tax relief.

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The president's tax relief program had been criticized as the wrong move in a time of recession, and following Sept. 11 some renewed calls for an increase to help protect spending for vital government programs.

"Some policymakers have advocated canceling the scheduled tax cuts," the release noted. "Raising taxes during a period of slow economic growth, however, does not make economic sense. Raising taxes would not only lower long-run growth prospects, but also jeopardize a recovery.

"The nascent recovery is still vulnerable and can be derailed by adverse shocks such as those arising from a tax increase."

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