Since President Bush signed the Economic Growth and Tax Relief Reconciliation Act of 2001 - legislation that cut taxes for all Americans, a number of prominent policy makers have suggested that certain parts of that law be repealed, delayed, or even "revisited" via a bipartisan economic summit.
These policymakers have attributed the stock market decline, the recent increase in joblessness, and the return of budget deficits, to the 2001 tax cut.
For example Senate Majority Leader Thomas Daschle says the tax cut is the "biggest reason" the surplus deteriorated so quickly, that it "probably made the recession worse," and "put us in an unnecessary fiscal bind at the worst possible time."
House Minority Leader Richard Gephardt described the 2001 tax cut as "a rush to judgement" and "the most irresponsible legislative act that I've ever seen," in his 26-year House career.
Ranking Ways & Means Committee member, New York's Charles Rangel, has decried budget deficits and called for an economic summit to "see what we can afford in terms of tax cuts."
Since these policy makers are saying that parts of that law should be repealed, delayed, or revisited, The Heritage Foundation's economists -- in our Center for Data Analysis -- modeled the economic effects of repealing the scheduled reductions in marginal tax rates and the elimination of the "death" tax on estates.
What effect would repeal of the 2001 Bush tax cuts have on job growth? The overall economy? Personal income? This analysis presumes that, consistent with the criticisms quoted here, other elements of the 2001 tax cut package, such as the drop in the 15 percent tax bracket for lower income wage earners and the increase in the tax credit for children, would go into effect as planned.
Immediate Negative Impact: In each instance, our economists found that repeal would result in negative effects as early as 2003.
Chart 1: The change in personal income
By 2003 there will be $115 billion less in personal income; $155 billion less by 2004; and up to $275 billion by 2011.
Chart 2: The change in jobs
By 2003 there will be about 420,000 fewer jobs; 650,000 fewer by 2004; and up to 1.41 million fewer by 2011.
Chart 3: The change in gross domestic product (GDP)
By 2003, GDP will drop $50 billion dollars; $75 billion by 2004, and up to $220 billion by 2011.
Chart 4: The difference in consumption expenditures
By 2003 there will be $51 billion less in consumption; $80 billion by 2004, and up to $210 billion by 2011.
(click table below to enlarge)
(click table above to enlarge)