The Heritage Foundation

WebMemo #568 on Taxes

September 17, 2004

September 17, 2004 | WebMemo on Taxes

The Revenue Effects of Reinstating the Top Tax Rates

The House and Senate may soon debate legislation to make permanent the tax cuts enacted in 2001 and 2003. Without action, all of these tax cuts will expire automatically by January 1, 2011. Opponents of the tax cuts have consistently overestimated their cost in revenue.


The Center for Data Analysis at The Heritage Foundation has estimated the six-year (2005-2010) revenue effect of reinstating the top individual income tax rates. The estimated tax increases are:

  • $142.7 billion from increasing the top bracket rate from 35 to 39.6 percent and
  • $163.0 billion from increasing the top two bracket rates from 33 to 36 percent and 35 to 39.6 percent.

Below are the estimated changes in federal individual income tax (after refundable credits) for reinstating the top bracket and the top two brackets, on a calendar liability year basis.

Calendar Liability Year Increase Top Rate Increase Top Two Rates
2005 $21.7 billion $25.4 billion
2006 22.3 25.6
2007 23.4 26.9
2008 23.3 26.4
2009 25.7 29.1
2010 26.4 29.6
Total $142.7 billion $163.0 billion

These are static revenue estimates that do not take into account behavioral effects due to the marginal rate changes. Further, they do not include any macroeconomic effects.


Ralph A. Rector, Ph.D., is Research Fellow and Project Manager in the Center for Data Analysis at The Heritage Foundation.

About the Author

Ralph A. Rector, Ph.D. Senior Research Fellow
Center for Data Analysis

Related Issues: Taxes