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News Releases on Taxes

March 14, 2003

March 14, 2003 | News Releases on Taxes

Heritage Analysis Finds Bush Economic Plan "Job-Creation Machine"

WASHINGTON, MARCH 13, 2003-Critics of President Bush's economic growth plan claim it would help only the rich. But a comprehensive econometric analysis from The Heritage Foundation shows Americans at every income level would benefit, as employment, personal savings and disposable income rise dramatically over the next decade.

Heritage analysis indicates the Bush proposal would stimulate economic growth immediately, as well as over the long haul. In the first year alone (2004), according to tables released today by Heritage's Center for Data Analysis, the plan would:

  • Enlarge the nation's gross domestic product by more than $84 billion;
  • Add approximately 997,000 jobs;
  • Increase personal savings by $115 billion, and;
  • Boost disposable income by nearly $215 billion.

What about deficits? The CDA analysis shows the president's plan would have a net "cost" of only about $276 billion over the next 10 years, less than half the cost estimated a month ago by the Congressional Budget Office. The single biggest hit to federal coffers-$95 billion-would come in 2004, Heritage concluded.

"Under this plan, you get what investors call a good rate of return," said Heritage economist William Beach. "On the one hand, we see federal debt climbing to about $579 billion. But we also see the total amount of disposable personal income hitting $1.86 trillion. In short, we get $3.22 for every $1 we pay for this plan-a sound investment by any measure."

To reach their conclusions, CDA analysts used what economists call "dynamic scoring"-a method employed for years by state governments, private businesses and Fortune 500 companies to predict how people react to changes in tax policy-instead of the "static scoring" method CBO uses.

"Static" scorers make no predictions, a position Beach considers illogical. "The critics running down the president's plan don't seem to understand or care that when you cut taxes, you change how taxpayers behave," he said. "They're going to save more, spend more and invest more."

And under the president's tax plan, they're going to be doing a lot of it, according to Beach. "We've been scoring tax proposals for years, and I've never before seen one that would give the economy such a boost," he said. "The main reason-and it's ironic, when you consider how the plan is criticized-is the dividend tax cut. By making investment cheaper, we give the economy a serious shot in the arm, one that will bring lasting, long-term growth.

"This isn't a tax cut for the wealthy," he said. "It's a job-creation machine."

The CDA numbers back him up. Slightly more than 1 million additional jobs would be created in 2005 under the president's plan, and each year after that, through 2013, would see at least 741,000 additional jobs. Unemployment would drop as well, with an average of 805,000 more people finding work each year under the president's plan.

The plan also would help state governments that need more money to balance their budgets, Beach said, predicting that state consumption and investment would dip by about $700 million in 2004, then increase by $1.5 billion in 2005.

The CDA analysis shows that millions of taxpayers will save under the Bush plan, both directly in the form of lower tax payments and indirectly in the form of higher wages. Some 34 million married couples with two incomes will no longer be hit with the 'marriage penalty,' that quirk in the tax code that forces them to pay more than two singles making just as much, Beach said. About 25 million parents will enjoy a higher child tax credit, and 25 million families with dividends will get a break.

More information can be found online at Heritage's "Reality Check" on taxes at: www.heritage.org/research/taxes/taxbriefingroom.cfm.

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