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A Bill That Won't Stimulate The Economy

Daily Policy Digest

Tax Issues

Monday, November 19, 2001

It is unlikely that Congress will enact a stimulus plan that actually stimulates the economy, says Bruce Bartlett. Democrats object to tax cuts for those who might use the additional money for investment -- mainly wealthier Americans.

Despite the fact that private businesses and well-to-do individuals are the basic sources of economic growth, the "stimulus" plans being debated in Congress do virtually nothing meaningful for either group.

A Congressional Budget Office study, "Effective Federal Tax Rates, 1979-1997,"shows that the wealthy already shoulder more than their fair share of the federal tax burden. And contrary to popular belief, the tax burden on the productive class has been rising, not falling.

According to the CBO, those in the top 20 percent of the income distribution now pay 27.4 percent of their total income to the federal government, up from 23.7 percent in 1983 (see figure).

And those at the very top -- the top 1 percent of households -- have seen an increase in their effective tax rate from 26.8 percent to 32.7 percent.

As a result, the share of total federal taxes paid by the top quintile has risen from 56.9 percent in 1983 to 65.4 percent in 2000. o The share paid by the top 1 percent has risen from 13.9 percent to 23.1 percent. Concomitantly, the tax rate on those with modest incomes has fallen almost continuously. Those in the bottom quintile now pay just 5.3 percent versus 8.1 percent in 1983.

Of course, Congress is free to call some legislation a "stimulus" bill even when it won't stimulate anything, because none of the benefits go to those who produce, save and invest. Unfortunately, it looks like that is what we are going to get.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, November 19, 2001.

For Bartlett text http://www.ncpa.org/edo/bb/2001/bb111901.html

For CBO text http://www.cbo.gov

For more on Tax Legislation http://www.ncpa.org/iss/tax/

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