NCPA - National Center for Policy Analysis

Benefits Of Tax Rate Cuts Beat Rebates Every Time

May 24, 2001

Some members of Congress still want to stimulate the economy by delivering the $100 billion they've set aside for immediate tax relief in the form of $300 to $400 rebate checks to every taxpayer.

But using the same economic model used by many Fortune 500 companies, the Heritage Foundation's Center for Data Analysis compared a rebate program that would pay $52 billion this year and $51 billion next year with a similar-sized tax rate reduction over the same period. Among their findings:

  • The rate cut would produce 180,000 jobs in the first year and 352,000 over two.
  • The rebate would generate only 70,000 jobs the first year and 158,000 over two -- less than half as many.
  • The rate cuts would spark $38 billion in additional consumer spending, compared to $33 billion for rebates.
  • Rate cuts would generate $7.6 billion in new investment -- $2.4 billion more than rebates.

In the longer run, with tax rate cuts, by the end of 2011 gross domestic product would be $95.9 billion higher -- a huge improvement over the $5.2 billion boost in GDP with rebates. Unemployment would be even lower than Congress is now estimating, with 1.6 million more Americans working, thanks to the increased productivity rate cuts would unleash.

A family of four would have $4,644 more by the end of 2011 than they'd have under rebates. In response to this increase in the family budget, consumer spending would rise $257 billion, or $3,422 for each family of four. This family's savings would also increase by $1,087 more than it would with rebates.

Source: William Beach and Mark Wilson, "Shelve The Rebates & Bring On The Rate Cuts," May 16, 2001, Center for Data Analysis, Heritage Foundation.

 

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