The Heritage Foundation

Factsheet #3 on Taxes

February 3, 2009

February 3, 2009 | Factsheet on Taxes

No Jobs, No Growth, No Need

The Basics

  • Wrong Idea: Debt should make the economy more competitive by purchasing assets that produce income - that is, assets that earn a return greater than the cost of borrowing; otherwise the debt becomes a burden on economic growth. The current Senate bill being debated ignores this principle.
  • Right Idea: The most effective means of helping the economy recover is to improve the incentives that drive economic activity, and that means reducing tax rates on work, saving, investment, risk taking and entrepreneurial activity.

Economic Effects of the Trillion Dollar Spending Plan

A Heritage Foundation economic analysis showed:

  • No GDP Growth: The 10-year average increase in GDP is only $72 billion. The largest increase in GDP comes in 2010 at $173 billion and drops off considerably thereafter, despite continued government borrowing and spending.
  • No Jobs: The 10-year average number of jobs created is 616,000. The maximum number of mostly temporary jobs created in any one year as a result of this plan will be 1.8 million and that isn't until 2011. Jobs growth actually declines over the next two years.
  • No Investment: Non-residential investment, which drives sustainable growth, actually decreases by an average $3.1 billion.
  • No Need: According to CBO estimates, most of the discretionary spending will occur well after the economy would have recovered on its own.

Borrowing close to $1 trillion to purchase earmarks and special projects, not only does nothing to stimulate the U.S. economy, but it will actually further weaken it.

Smart Stimulus

Average Change in Key Macroeconomic Variables 2009-2018

The American Option will create rapid growth in wages and business incomes by reducing business taxes from 35% to 25%; reducing the estate tax to 15%; keeping the tax rates on dividends and capital gains at 15%; reducing individual tax rates to three levels and permanently repealing the Alternative Minimum Tax (AMT).

  • Employment: Increases employment by a half million jobs in 2009 and by 1.3 million jobs in 2010, and creates 4.8 million jobs between 2009 and 2012.
  • Families: Disposable personal income for an average family of four would rise, on average, by $1,300 in 2009 and quickly rise to more than $4,500 by 2013.
  • No New Taxes: Without the pro-growth elements of this plan, these families could expect their tax rates to rise 4 percentage points, from an effective rate of 12% to an effective rate of 16%. This plan would keep the rate just under 13%.
  • Small Businesses: The effective tax rates for small businesses would fall from an average of 17.1% to an average of 14.8% and provide more than 2 million successful small businesses with lower tax rates.

Twice the Jobs at Half the Price

Check out Heritage ideas for how to provide twice the jobs at half the price at heritage.org.

About the Author

Related Issues: Taxes