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News Releases on Taxes

May 6, 2003

May 6, 2003 | News Releases on Taxes

Analysis Shows How Capital Gains/ Dividens Tax Cut Would Help Economy

Washington, May 6, 2003-A proposal on Capitol Hill to cut taxes on long-term capital gains and dividends would prompt immediate and sustained economic growth, calculations by The Heritage Foundation's Center for Data Analysis (CDA) show.

Reducing the income tax on long-term capital gains and dividends to 5 percent for low-income filers and to 15 percent for those in higher tax brackets would create 252,000 new jobs in 2004 and an average of 367,600 jobs annually over the next five years, CDA economists found. It also would boost gross domestic product by $21 billion next year and by an average of almost $31 billion annually through 2008.

The result: A stronger economy that would yield additional tax revenue-enough, according to the CDA, to reduce the net "cost" of the tax cuts from an estimated $277 billion over a 10-year period to $147 billion.

The "5/15" proposal is part of a $550 billion tax-cut plan designed by House Ways and Means Committee Chairman William Thomas. And while it wouldn't strengthen the economy as much as the $726 billion plan backed by the White House, it still provides meaningful stimulus to a struggling economy, says Heritage tax analyst Rea Hederman.

"The Thomas plan works for the same reason the president's plan works," he said. "Potential investors will be more willing to invest because they will pay less tax on the returns on their investment. And with the cost of capital declining, corporate managers will find it more profitable to invest in projects they previously had ruled out."

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

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