The Heritage Foundation

News Releases on Taxes

March 3, 1999

March 3, 1999 | News Releases on Taxes

10 Percent Tax Cut Would Bring Modest Economic Gains

WASHINGTON, MARCH 3, 1999-A 10 percent "across-the-board" cut in marginal income-tax rates would provide modest gains for the nation's economy, including a lower tax bill for almost all Americans, according to a new study by The Heritage Foundation.

Economists at Heritage's Center for Data Analysis used budgetary assumptions published by the Congressional Budget Office (CBO) in January to calculate the economic impact of the tax cut over a 10-year period, from 2000 to 2009. The economists produced both "static" estimates (assuming no change in taxpayer behavior) and "dynamic" estimates (assuming some change in taxpayer behavior) by plugging the tax cut into the U.S. Macroeconomic Model of the WEFA Group, one of the country's leading economic forecasting firms. They found the tax cut would:

  • Reduce the tax bills of nearly all taxpayers. Taxpayers in the 15 percent bracket would see their 1999 tax bill drop by an average of $700, while taxpayers in the 28 percent bracket would save an average of $1,050.

  • Strengthen the economy, with the gross domestic product (GDP) rising by an average of $35.9 billion per year after inflation between 2000 and 2009. Disposable income would also rise an average of $339 per household per year.

  • Reduce projected budget surpluses by 31 percent, leaving intact $1.8 trillion of the CBO's forecasted surpluses between 2000 and 2009. Lawmakers would still have 69 percent of the surpluses to devote to Social Security reform-7 percent more than the White House has requested.

  • Increase personal savings by $39.4 billion by the end of 2009, with the personal savings rate climbing from 4.7 percent to 4.9 percent.

  • Cause federal revenues from the individual income tax to fall by $797 billion between 2000 and 2009 under static assumptions, and $633 billion under dynamic assumptions.

  • Create nearly 290,000 jobs over the 10-year period. Unemployment would remain below CBO forecasts, and wages would rise.

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