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Bloomberg columnist Caroline Baum gently reminds us that not every tax cut achieves its intended effect.

Case study: The 2001 Bush Administration federal income tax cut, which included a cut in the marginal tax rate to 35% from 39.6%. The Bush Administration touted it as a tax cut that would increase incentives to invest, save and work.

The result? The tax cut didn't work: saving and investment have been "anemic" during the Bush years, Baum said, citing data provided by Paul Kasriel, chief economist at Northern Trust Corp. in Chicago. Business investment is down, the savings rate is at a post-World War II low. Further, the labor participation rate has declined.

No guarantee tax cut would be invested in U.S.

But why didn't cutting the top marginal rate do all of the good things the Bush Administration touted? Economist Peter Dawson said the reason is the tax cut's inherent flaw.

"The tax cut contained the mistaken belief that rich taxpayers would invest their money and invest in the right way, in the U.S., to increase GDP," Dawson said. "There was no guarantee that they would do that. Someone who is rich could invest the money in Brazil or India, with little benefit for the United States."

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The Bush Administration's tax cut didn't increase investment and savings originally appeared on BloggingStocks on Mon, 08 Sep 2008 11:40:00 EST. Please see our terms for use of feeds.

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