NCPA - National Center for Policy Analysis

HOW THE RANGEL TAX BILL COULD AFFECT THE U.S. ECONOMY

November 9, 2007

The debate over H.R. 3970 (the Tax Reduction and Reform Act of 2007) -- what Charles Rangel (D-N.Y.) refers to as "the mother of all tax bills" -- is really over a fundamental change in tax policy from emphasizing growth in the economy to emphasizing tax increases that would pay for new and expanded federal programs, says the Heritage Foundation.

If the Rangel tax bill is enacted in its current form, consequences would include the following:

  • The U.S. economy would fall significantly short of the potential forecasted for it by the Congressional Budget Office (CBO) earlier this year.
  • Job creation would fall below its potential by more than 100,000 jobs per year.
  • The disposable income of households would shrink by more than $30 billion per year from forecasted levels.

The Rangel tax bill is part of an even larger approach to tax policy change that focuses on repeal of the Bush tax cuts.  The economic effects of combining H.R. 3970 with a repeal of the Bush tax cuts would likely include the following:

  • The output of the economy as measured by the gross domestic product (GDP), after subtracting inflation, would fall by an average of $60 billion per year.
  • More than one million jobs would be lost in 2013, and an average of 600,000 would be lost annually over the next 10 years (most of which would be after 2011).
  • Disposable income of households (after inflation is subtracted) would fall short of potential by nearly $200 billion per year.
  • Household savings would shrink, investment would decline and the general pace of economic life would subside.

Source: William W. Beach and Guinevere Nell, "The End of Pro-Growth Tax Policy: How the Rangel Tax Bill Could Affect the U.S. Economy," Heritage Foundation, WebMemo #1697, November 7, 2007.

 

Browse more articles on Tax and Spending Issues