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Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: Zoltan! who wrote (131032)	3/9/2001 4:41:02 PM
From: greenspirit	Respond to of 769667

Zoltan, you can almost always count on the Heritage Foundation to give a thorough analysis. heritage.org THE ECONOMIC AND BUDGETARY EFFECTS OF H.R. 3, THE ECONOMIC GROWTH AND TAX RELIEF ACT OF 2001 D. MARK WILSON, WILLIAM W. BEACH AND REA S. HEDERMAN, JR. Produced by the Heritage Center for Data Analysis The Economic Growth and Tax Relief Act of 2001 (H.R. 3) recently introduced by Representative William Thomas (R-CA) would enact the federal income tax rate reductions that President George W. Bush submitted to Congress on February 8 and make the rate change retroactive. It would reduce the current five income tax rate brackets (15 percent, 28 percent, 31 percent, 36 percent, and 39.6 percent) to four lower tax brackets of 10 percent, 15 percent, 25 percent, and 33 percent. 1 While most of the reductions in the tax brackets are to be implemented between 2002 and 2006, H.R. 3 would reduce the 15 percent tax bracket to 12 percent retroactive to January 1, 2001.2 H.R. 3 also would repeal the alternative minimum tax (AMT) provisions that offset the refundable child credit and earned income credit. This analysis presents the effects of H.R. 3 on the U.S. economy. ECONOMIC AND BUDGETARY EFFECTS OF H.R. 3 Economists generally view tax rate reduction as one of the most important steps government can take to support greater levels of economic activity. Reductions in tax rates usually mean that the labor and capital costs of goods and services fall because the tax portion of wages and interest is lower. These lower costs enable businesses to implement new production techniques, encourage customers to increase their consumption of goods, and stimulate Americans to devote more of their time to paid work rather than leisure. Economic theory predicts that the responses to lower tax rates will raise economic output and long-term economic growth.3 While H.R. 3 does not directly reduce the tax rates on capital, it significantly lowers tax rates on labor income. How will the economy respond to these lower rates, and how will this response affect the net or dynamic "cost" of this tax policy change? To answer these questions, Heritage economists used WEFA's U.S. Macroeconomic Model to conduct a dynamic simulation of the legislation.4 Heritage economists reconstructed WEFA's December 2000 long-term model to embody the economic and budgetary assumptions published by the Congressional Budget Office (CBO) in January 2001. These are the same economic assumptions that Congress adopts when it frames and passes its annual budget resolution. This specifically adapted model then uses CBO budget assumptions to produce dynamic simulations of policy changes. The Joint Committee on Taxation preliminarily estimated the static tax revenue reduction of H.R. 3 to be $948 billion from fiscal year (FY) 2001 to FY 2011.5 This estimate, however, is misleading because it does not recognize likely economic responses to the policy change and the expanded pool of taxable income produced by greater economic activity. Heritage's dynamic analysis, by comparison, suggests that H.R. 3 would reduce federal revenue by just $634 billion from FY 2001 to FY 2011. The difference of $314 billion over 11 years between the static and dynamic estimates results from the increased economic activity and higher employment growth that H.R. 3's tax rate reductions would help produce.