NCPA - National Center for Policy Analysis

These Suggestions Spell Real Tax Relief

March 26, 2001

Two new reports out of the liberal Jerome Levy Economic Institute argue that large and growing federal budget surpluses are an enormous drag on the economy and that taxes should be cut by $4.8 trillion over the next 10 years -- three times the $1.6 trillion level advanced by President George W. Bush.

One report is by economist Wynne Godley and the other by Dimitri B. Papadimitriou and L. Randall Wray.

Here are some of their observations:

  • Business and consumer spending -- buoyed by record levels of borrowing -- will fall sharply as the economy stalls.
  • That spending drop will be especially painful because economic growth is already constrained by huge and growing federal budget surpluses.
  • The Congressional Budget Office projects that excess revenue will rise from 2.4 percent of gross domestic product in 2000 to 5.3 percent of GDP by 2011 -- which could lead to a serious and long recession, unless taxes are cut.
  • The economists' plan is to add payroll-tax relief and expanded credits for families to the Bush plan.

They suggest about $450 billion a year to offset expected cutbacks in household spending during the next few years.

Over the course of the decade, their projections bring government revenues in line with public outlays so surpluses don't continue to weigh down the economy.

Source: Charles J. Whalen, "Economic Trends: A Call to Triple the Tax Cut," Business Week, April 2, 2001.


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