Tax relief is needed in any balanced budget plan, because reducing or eliminating tax relief on income from capital would lower potential economic growth significantly and wouldn't provide extra revenue for new spending.

According to projections based on an econometric model of the United States economy:

• The Congressional balanced budget plan with tax cuts vetoed by President Clinton would add $112 billion more to Gross Domestic Product (GDP) over the next seven years than the same plan without tax cuts.

• The reductions in taxes on capital, including capital gains tax relief, accounts for $66 billion of this additional GDP.

Economists estimate that as much as $7.5 trillion in unrealized capital gains exist in the American economy, and that every one percent drop in the rate of taxation of capital gains would increase realizations by 6 percent. At that point, the gains would be subject to taxation, causing a revenue "windfall" to the federal and state governments.

Source: William W. Beach and John S. Barry, "Balanced Budget Talking Points #9: Why Tax Relief is Necessary in a Balanced Budget," December 29, 1995, F.Y.I. No. 83, Heritage Foundation, 214 Massachusetts Avenue, N.E., Washington, DC 20002, (202) 546-4400.