November 19, 2002 | News Releases on Taxes
NOV. 18, 2002
Making the 2001 tax cuts permanent now would benefit only the rich and cost the U.S. Treasury billions in lost revenue, critics claim. But a new Heritage Foundation study shows that making even a portion of the tax cuts permanent now would boost America's economy and tax revenues.
About 118,000 jobs could be created by 2012 if lawmakers get rid of three federal estate taxes this year instead of phasing them out by 2010, according to a paper by Al Goyburu, an analyst in Heritage's Center for Data Analysis. And America's gross domestic product would average $10.6 billion more over the next decade if the tax cuts were made permanent today, he says.
Last year, President Bush signed into law a package of tax cuts and policy changes designed to reduce taxes gradually over a 10-year period. After 2010, taxes are scheduled to return to 2001 levels.
Among the taxes reduced in the package are the federal estate tax, which taxes estates worth more than $1 million at the time of the owner's death; the federal generation-skipping tax, which taxes people who receive more than $1 million from a grandparent during their lifetime; and the federal gift tax, which applies to gifts worth more than $10,000 per year.
Using budgetary assumptions published by the Congressional Budget Office, Goyburu estimated the effects of an immediate and permanent repeal of all these taxes. He found that quickly making the cuts permanent could improve the nation's economy over the next 10 years without increasing the federal deficit or publicly held debt.
But, tax-cut foes may reply, Federal Reserve Chairman Alan Greenspan has said that making the tax cuts permanent won't stimulate the economy. "They're overlooking a key point," Goyburu says. "Greenspan said it wouldn't help because the markets already assume the cuts would be made permanent. And he warned about a 'negative effect later on' if the markets find out they're wrong."
Moreover, Goyburu says under current tax law, repealing the federal estate taxes actually would increase government revenues. "The historical record clearly shows that cuts would create more capital wealth, which creates more jobs and increases the number of taxpayers," he says.
In addition, making these particular tax cuts permanent and immediate would, by 2012:
"These estate taxes have damaging economic effects, slowing economic growth and reducing potential increases in employment," Goyburu says. "A temporary phasing out of the federal estate transfer taxes will do almost nothing to change this."
Goyburu used the DRI-WEFA U.S. Macroeconomic Model to reach his conclusions. The model was developed in the late 1960s by a Nobel Prize-winning economist and is used by Fortune 500 companies, federal agencies and other professional economists.