NCPA - National Center for Policy Analysis


September 22, 2005

Some would use Hurricane Katrina, and the great expense of recovery efforts, as justification for letting the President's tax cuts expire. But while the fiscal impact of Katrina on federal spending is already setting records, national emergencies are the worst time to increase taxes, says the Heritage Foundation.

Indeed, if federal taxes are unexpectedly increased, the business climate and labor markets will be even more battered than they are now, says Heritage.

  • In contrast, making the President's tax cuts permanent now would create 430,000 additional jobs in 2006 alone and an average of 624,000 jobs per year over the next decade.
  • In local terms, making the tax cuts permanent would annually create 5,300 additional jobs in Mississippi and 9,100 additional jobs in Louisiana - about one-third of those in New Orleans.

Heritage projected that the passage of the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) of 2003 would create millions of additional jobs above and beyond what the economy would generate normally. These projections were driven by the strong expansionary components of the bill.

JGTRRA accelerated the phase-in of incentives to work and invest from the President's 2001 tax cuts, while also providing major new incentives:

  • The top marginal tax rate was reduced from 39.6 percent to 35 percent, and a 10-percent bracket was introduced.
  • The tax rate, on long-term capital gains and dividends was lowered to 15 percent; equally important, JGTRRA allowed businesses to more quickly deduct the expenses of their investments in machinery, computers, and software.
  • The child tax credit was increased from $500 to $1,000 per child.

To pay for Katrina recovery efforts, Congress should prioritize spending programs and make cuts instead of raising taxes, which would only further damage the Gulf Coast and national economy, says Heritage.

Source: Rea S. Hederman Jr., Tim Kane and Scott Moody, "Repealing Tax Cuts to Pay For Katrina Recovery Would Cost the Gulf Coast, and the Nation, Jobs," Heritage Foundation, WebMemo #849, September 19, 2005.


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