The Heritage Foundation

WebMemo #244 on Taxes

April 1, 2003

April 1, 2003 | WebMemo on Taxes

Senate's Adoption of Breaux Amendment Means Fewer Jobs and LessEconomic Growth

As for the tax cut, [Sen. John Breaux]  said he can't support a measure that would add so much to the growing federal deficit, with its major component, dividend tax elimination, benefiting only 8 percent of Louisiana taxpayers.
-- The New Orleans Times-Picayune, March 6, 2003

"They should be ashamed to come here asking for tax reform under the cover of stimulus. No one believes the relief of taxes on dividends will stimulate the economy or the estate tax will stimulate the economy. Those with estates and those with dividends, Bill Gates and several other witnesses, have said that is the wrong course to take. They know it. I know it. You know it."
--Sen. Fritz Hollings, Congressional Record S.Con.Res 23, FY 2004 Budget Resolution, March 19, 2003

Chart: Economic Growth Comparison Between House and Senate (pdf)

Chart: Job Creation Comparison Between House and Senate (pdf)

Table: Job Growth Under House and Senate FY 2004 Budget Resolutions (pdf)

On March 26th, the Senate adopted an amendment -- voting 51-48 -- by Sen. John Breaux (D-LA) to reduce the size of the President's jobs and growth package by 52 percent, from $726 billion to only $350 billion.

Leading proponents of this amendment openly criticized the President's proposal to eliminate the double taxation of dividends. Sadly, the scaled-back Senate level of tax relief, if adopted, would require Congress to reduce or eliminate the strongest growth components of the President's growth package.

Compared with the Bush plan over the next five years, the Senate's proposal will have the following result:

  • Reduce GDP $40 billion per year;
  • Shrink job creation by 552,000 jobs per year;
  • Reduce capital investment by $45 billion per year; and
  • Reduce disposable income by $224 per person.

The Heritage Foundation's Center for Data Analysis used the DRI/WEFA U.S. macro econometric model to simulate the differences between the two proposals. The Senate version does not simulate any dividend taxation reform.

About the Author

Rea S. Hederman, Jr. Director, Center for Data Analysis and Lazof Family Fellow
Center for Data Analysis