Implementing the President's Economic Growth Package could
generate enough growth, jobs and tax revenue to cut the real cost
of the plan by 57 percent compared with "static" measures which
largely ignore how people respond to tax incentives. This means the
"cost" of the plan would be $274 billion, compared with static
estimates of $638 billion.
Specifically under the full plan, the United State's economy
would enjoy:
- An annual average of 844,000 new jobs from 2004 through 2013.
Job growth peaks in the first two years, with 997,000 and 1.03
million jobs coming in 2004 and 2005, respectively (see chart
1);
- An annual average of $69 billion in additional GDP from 2004
through 2013, with an increase of $84 billion in GDP in
2004;
- An annual average of $121 billion in additional disposable
income from 2004 through 2013, with an increase of $178 billion in
2004 (see chart 2); and
- An annual average of 57% feedback from 2004 through 2013, a
$274 billion "cost" versus a "static" cost of $638 billion.
Chart 1
Chart 2
Dividends Drive Growth
The Center for Data Analysis (CDA) at The Heritage
Foundation used a sophisticated reality-based scoring method to
evaluate the President's plan. The projections show that ending the
double taxation of dividends drives a significant percentage of the
plan's growth, with the strongest growth coming in the first
several years.
For the time period 2004-2013, the dividend plan alone
contributes, on average:
- 69 percent of the job growth (577,000);
- 72 percent of the GDP growth ($50 billion);
- 64 percent of the additional disposable income ($77 billion);
and
- Feedback of 60.4%; a $142 billion "cost" vs. a "static cost" of
$360 billion.
These figures demonstrate the superiority of reality-based
scoring, particularly when scoring a plan that so heavily relies on
pro-growth calculations.
Ending the double taxation on dividends lowers the tax rate on
capital, an important component of fundamental tax reform. As
Treasury Secretary John Snow
told the Associated Press, "Why do we want to double-tax the
lifeblood of the economy - capital?"
A Wall Street Journal article [] quotes Glen Hubbard, chief architect of
the Bush administration's tax cut package, saying, "'Lowering the
capital tax means that investors receive a much-larger after-tax
return on investments.' ... That will urge them to invest more,
pushing down the cost of capital so that businesses will invest
more - and we'll all live happily ever after. 'A dividend tax cut
is a way to raise wages.'"
President Bush's proposal recognizes and solves the real
economic problem facing the country: slow growth. Abolishing the
double taxation of corporate dividends produces conditions for
stronger growth, and expands the tax base. This means that revenue
projections based on static estimating models overestimate the
actual revenue loss.