Economic Report of the President

and the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) in May2003. A fourth bill, the Working Families Tax Relief Act (WFTRA), signedin October 2004, extends some provisions of the previous bills.These bills—described in further detail in Chapter 3, Options for TaxReform, and in the 2004 Economic Report of the President—were designedto boost both aggregate demand and aggregate supply. The aggregate demandeffects came in several parts. First, tax cuts to individuals raised real disposableincome (real income less taxes) and thereby supported consumption.Second, the tax cuts provided incentives for investment, both by lowering taxrates on personal capital income and by increasing the amount of investmentallowed to be expensed by businesses. The investment incentives were alsodesigned to have long-term effects on aggregate supply, by increasing theamount of capital accumulation.The impact of the boost to aggregate demand can be assessed by plottingthe growth of real income and real disposable income across expansions(Chart 2-10). During the first three years of an average expansion, disposableincome growth is only slightly larger than personal income growth, suggestingthat tax policy provides only a small boost. In the 1990s expansion, there wasessentially no difference between real income growth and real disposableChapter 2 | 65