analysis shows that the difference between two major economic
growth proposals -- that Congress will consider -- could not be
greater as one plan eschews temporary fixes, and promises greater
short- and long- term stimulus, and the other plan proposes initial
tax cuts, followed with hefty tax- and spending-
The plans are:
- President George
W. Bush's plan, generally reflected in the legislative language of
H.R. 2, the Jobs and Growth Tax Act of 2003, that relies on
across-the-board tax policy changes to spur economic activity;
- Senator Tom
Daschle's (D-SD) proposal, S. 414, the Economic Recovery Act of
2003, which employs one-year, targeted tax cuts and large increases
in spending to boost economic growth.
Significant differences between the two
plans become all the more evident in subsequent years, based on an
analysis performed by The Center for Data Analysis at The Heritage
Foundation, using a structural model of the U.S.
First Year Stimulus (see charts 1 and 2)
Senator Daschle's proposal, S.
414, does little to boost economic activity in the short run and
virtually nothing in the long run. If the bill becomes law prior to
July 1 of this year, it would support an additional:
- 545,000 jobs in
- $49 billion more
in Gross Domestic Product (GDP), which would raise the growth rate
for 2003 by half a percentage point over current forecasts.
proposal, on the other hand, would support an additional:
- 843,000 jobs in
- $29.5 billion
more in GDP, for a boost in the growth rate of three tenths of a
percent over forecasts.
Long Term Stimulus (see charts 3 and 4)
Between 2004 and
2013, the differences are dramatic and obvious.
Average annual employment
- 787,000 under
the President Bush's plan.
- 22,100 under
Sen. Daschle's plan.
Average annual GDP increase:
- $69 billion
under President Bush's plan
- $3.4 billion
under Sen. Daschle's plan.
The two plans also
differ significantly on a number of economic indicators.
rate under the President's plan drops by an average of half a
percent point over the 11-year period, 2003 through 2013.While
Senator Daschle's proposal shaves four tenths of a percent point
off of the unemployment rate in 2003, it leaves the unemployment
rate unchanged in subsequent years.
Daschle's proposal initially cuts taxes on business investment,
particularly for small businesses.This initial boost to investment
leads to a $7.3 billion increase in factories, equipment, and other
forms of non-residential investment.However, this targeted tax cut
is reversed in 2004, which cuts off further significant growth in
the nation's capital stock.
plan, on the other hand, puts a great emphasis on investment, which
leads to an increase in capital stock of $10.9 billion in 2003.By
the end of the 11-year period (or 2013), the capital stock is
$581.6 billion greater than it otherwise would be without the
President's tax policy changes.
alternative to President Bush's Economic Growth Package consists of
tax cuts, tax increases, and spending increases.The alternative
cuts taxes during the third quarter of 2003, principally for small
businesses.Over that three-month period, small business owners will
see taxes fall by about $34 billion.During the next federal fiscal
year, which begins on October 1, 2003, taxes would rise by $33
billion as the provisions expire.
While the plan
contains these tax cuts and increases, it principally relies on
significant new spending to achieve its economic growth goals.The
alternative plan sends $71 billion in federal funds to taxpayers in
the form of advance refunds on tax payments, again during the third
quarter of the 2003 calendar year.The plan also supplies state
governments with an additional $26 billion in subsidies,
principally in the form of direct aid and support for state
Medicaid payments.Finally, federal unemployment insurance is
extended, which adds an additional $10 billion to outlays.
alternative plan increases the federal deficit during 2003 by $141
billion.While some outlays continue during 2004 and subsequent
years, the tax increases of 2004 offset spending by $29.5
plan, on the other hand, is anything but temporary.Key provisions
the President's tax plan of 2001 are activated now rather than in
2004 and 2006. These accelerated elements of the 2001 plan include
reductions in tax rates, enlargement of the new 10 percent tax
bracket, marriage penalty relief, and increases in the child tax
President proposes an end, presumably permanently, in the double
taxation of dividends. CDA estimates show that the President's
2003-tax plan will reduce revenues by $31.4 billion during the 2003
fiscal year, and by an additional $638.4 billion over the next ten