NCPA - National Center for Policy Analysis

Advantages Of Faster Growth

January 4, 1996

The GOP's Contract With America was based on a commitment to economic growth; Republicans claim the Clinton administration's commitment is to redistribution of income. The Republicans have already given up more than half of their pro-growth tax cuts and may give up more in order to get a budget deal with the President.

Yet there is no way to reduce the deficit more efficiently and more painlessly than with a higher rate of economic growth. And there is no way of reducing the need for welfare spending more rapidly and permanently than by achieving higher incomes for everyone.

  • The administration is committed to a growth rate of only 2.5 percent a year -- compared to the 3.3 percent rate of the last five years of the 1980s.
  • That difference amounts to $2.3 trillion in economic output over the next five years, including $520 billion of additional revenue for the government.
  • That additional government revenue would pay for all the tax cuts in the original House GOP plan, and still leave about $150 billion.
  • Of the six pro-growth tax cuts in the original Contract, only three -- in one form or another -- have survived to the current negotiations.
  • They are expanding Individual Retirement Accounts (IRAs), cutting the capital gains tax and increasing the estate tax credit.
  • By delaying indexing of capital gains taxes until 2002, the Republicans have already cut the growth impact of this measure in half.
  • The pro-growth measures that didn't make it into the budget reconciliation are indexing depreciation (or "neutral cost recovery"), reducing the social Security benefits tax to its pre-1993 level and increasing or eliminating the Social Security earnings limit.

So the economic stimulus effects of these provisions has been lost, for now.

A successful budgeting process must include two vital elements. Slowing the growth of government spending is one. Encouraging economic growth, however, is a higher priority, for it also creates jobs and increases take-home pay while reducing the deficit through greater tax receipts.

Source: Former Delaware Governor Pete du Pont (National Center for Policy Analysis), "Whatever Happened to the Growth Principle?" Wall Street Journal, January 4, 1996.


Browse more articles on Economic Issues