Final Tax Cut Package Should Include
the Most Pro-Growth Provisions
The House and Senate
leadership currently has before it three options for cutting taxes
and advancing economic growth: the tax legislation recently passed
in the House (H.R. 2) and the Senate (S. 1054) and President George
Bush's economic plan. To maximize the pro-growth aspects of the
three tax plans, the conference committee should:
-
Adopt the President's plan for eliminating the double taxation of
dividends;
-
Adopt the President's plan for accelerating the currently scheduled
decreases in individual marginal tax rates;
-
Expand bonus depreciation as indicated in the House plan; and
-
Include the small business expensing provision.
Economic growth occurs when people work more, save more, and invest
more to boost national income and wealth. Businesses grow when they
have lower costs that allow projects with marginal profitability to
become profitable. With the amount for tax relief already
arbitrarily capped at $550 billion over 10 years by the budget
agreement, Congress should focus on tax proposals that create the
most economic growth within this arbitrary static price.
What the Conference Bill Should
Include
If the House and Senate
agree to reconcile their differences through a conference, that
conference committee should reduce the tax on dividends and
accelerate the marginal rate provisions of 2001, as these are the
two best elements of the tax cut. They cause the most job growth
and return the best value for their cost. By not phasing out these
provisions, the President's plan creates the sense of certainty and
stability needed to ensure the maximum economic bang for the
buck.
Congress also should expand bonus
depreciation and include the small-business expensing provision.
The provisions cause strong growth in the early years by
temporarily reducing business costs. Business investment has
declined significantly over the past two years, and the bonus
depreciation and the small-business expensing provision encourage
businesses to expand. These provisions reduce the cost of capital
by up to 5 percent, which is comfortably above the accepted
threshold that economists say will encourage new investment and
economic growth.
Congress should also ensure that
taxpayers who benefit from the tax legislation it sends to
President Bush are protected against triggering or increasing their
tax liabilities under the alternative minimum tax (AMT). If the
ultimate tax legislation expands AMT liabilities, the positive
aspects of this year's tax relief provisions may inadvertently be
undone.
Eliminate Negative Growth Aspects
Additionally, the following provisions should be scratched
from any bill coming out of the conference committee:
- Aid to state and
city governments,
- Child care tax
credit,
- Special tax
breaks included in Senate bill, and
- Any attempt to
increase tax collections on taxpayers working in foreign
countries.
Effects of
Best Growth Plan
If Congress sends President Bush a tax bill that contains the best
pro-growth provisions of the three competing plans, the real
beneficiaries will be the millions of Americans actively engaged in
working, investing, and building businesses. Analysts in the Center
for Data Analysis of The Heritage Foundation project that these
pro-growth tax changes would:
- Create 817,000
jobs in 2004 and an average of 675,800 jobs from 2004-2008;
- Increase GDP by
$66.1 billion and an average of $58.7 billion from 2004-2008
(inflation- adjusted 1996 dollars);
- Increase personal
disposable income by $148.4 billion in 2004 and an average of
$122.2 billion from 2004-2008;
- Create a total
tax savings for taxpayers of $556 billion, or $6 billion over the
budget agreement, which can be met by spending reductions; and
- Cause the real
cost to the government to be even less as increased economic growth
produces new tax revenues.