NCPA - National Center for Policy Analysis

Short- and Long-Term Benefits of Bush Tax Plan

January 10, 2003

President Bush has proposed a set of tax reforms that will stimulate the economy and improve our tax system, says Bush's former chief economic adviser Lawrence Lindsey.

Critics charge that the package is too large, makes the wrong changes and disproportionately benefits the wealthy.

  • On the contrary, the package is prudently small, says Lindsey; it would inject about 1 percent of the gross domestic product -- around $100 billion -- into the economy this year and next.
  • After that, it would be roughly one-third of 1 percent of the domestic product over the rest of the next decade.

The plan will stimulate the economy in the short-term, says Lindsey. Combined with aid for small businesses and the unemployed, and the benefits to middle- and upper-middle-class Americans from taxes on stock dividends, an additional $80 billion is likely to go to consumers in each of the next two years.

The tax reforms in the plan are good for long-term economic expansion. Under current law, the 35 percent corporate rate combined with the top personal rate of 38.6 percent on stock dividends takes 60 cents out of each dollar a company earns and pays in dividends.

Critics claim the president's plan disproportionately favors the wealthy. Wrong. The tax cut is almost exactly proportional to taxes paid:

  • Under current law, families making more than $200,000, who pay 45 percent of the income tax under current law, will get 40 percent of the tax cut.
  • Families making less than $100,000 will pay 28 percent of the income tax this year and will get 34 percent of the tax cut.

The tax cuts in lower brackets, the reduction of the marriage penalty, the changes in the alternative minimum tax and the $400 increase in the per-child tax credit comprise two-thirds of the package over the next two years.

Source: Lawrence B. Lindsey, "The Right Tax Plan for Today and Tomorrow," New York Times, January 10, 2003.

 

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