The Republican Study Committee (RSC) has introduced the Economic
Growth Act of 2008 (H.R. 5109). The legislation, which aims to
stimulate the economy by lowering the tax and regulatory burden on
businesses, takes steps in the right direction. The legislation
offers a solid alternative to proposals-such as tax rebates and
federalizing mortgage contracts-that would fail to stimulate, or do
serious harm to, the economy.
Congress should focus on creating long-term, pro-growth economic
policies in the areas of taxes, spending, and regulation.
What the Bill Would Do
Expand and Accelerate Section 179 Expensing.
H.R. 5109 would allow all businesses to fully expense the costs of
assets they purchase in any given year. In general, the tax code
forces businesses to treat a portion of their investment expenses
as if they were taxable income. Section 179 allows small businesses
to deduct-or "expense"-their investment costs when calculating
taxable income. However, businesses can only take limited
deductions spread out over many years. Experience shows that
one-year expensing of business purchases that otherwise would be
depreciated over a longer period of time for tax purposes can help
during periods of slow growth.
Reduce the Top Corporate Tax Rate. The bill
would cut the top corporate income tax rate from 35 percent to 25
percent. The current corporate tax rate puts U.S. companies at a
significant disadvantage in the global marketplace. Lowering taxes
on corporations would improve U.S. competitiveness while
encouraging job creation and investment.
End the Capital Gains Tax on Inflation. The
bill would index for inflation the cost basis used when calculating
the capital gains tax on assets acquired before the end of 2008.
Under current law, capital gains are not adjusted for inflation.
This counterproductive and unfair policy raises effective capital
gains tax rates, forcing investors to retain assets and inhibiting
Simplify the Capital Gains Rate Structure. The
bill would cut the top capital gains rate from 35 percent to 15
percent. This provision would lead to increased business investment
by reducing the cost of capital and encourage the selling of
unwanted assets to those who could make better use of them.
Congress Can Do More
The RSC recognizes that the source of economic activity is the
private market, not Washington. But Congress can do much more to
remove the obstacles that inhibit economic growth. Specifically,
Congress needs to change the policies that unnecessarily increase
the risk of starting new businesses and expanding existing
Congress is not the best policymaking body for addressing the
short-term challenges of the economy. A stimulus focused on tax
rebates would be a largely symbolic action that would do little to
prevent a recession or encourage economic growth.
Instead, Congress should use the current period of slow growth
to tackle the long-term economic problems in the economy through
tax, regulatory, and spending reforms. The RSC recognizes this, and
the Economic Growth Act of 2008 would take positive steps in this
direction by lowering the tax and regulatory burden on
Tom Finnigan is a Senior Web Editor at The Heritage