NCPA - National Center for Policy Analysis

Expand The Tax Cut

March 8, 2001

Washington observers note the debate over tax cuts comes down to a simple question: whose money is it? House Democratic leader Dick Gephardt (D-Mo.) argues, "We are spending money we don't have." Gephardt equates tax cuts with government spending, operating from the position that government owns every dollar in the country.

Rep. Dick Armey (R-Texas) counters that the surplus piling up in the Treasury is someone else's money, and contends that the proposed Bush tax cut of $1.6 trillion dollars is too small, given the projected $5.6 trillion surplus projected over 10 years.

Here's the thinking:

  • The price tag Bush has affixed to his tax cut package is inflated if we take into consideration how consumers will react to the lower rates.
  • This so-called "dynamic scoring" yields a price tag of $939 billion, according to the Heritage Foundation.
  • That's just 58 percent of the $1.622 trillion over 10 years predicted by the Congressional Budget Office's "static" model.
  • Thus, using the more realistic assessment, Bush could nearly double the size of his tax cut.

Similarly, a cut in the capital gains tax could both pay for itself and boost economic activity. Since the last cut -- from 28 percent to 20 percent in 1997 -- tax receipts from capital gains shot up from $35 billion a year in the mid-90s to more than $100 billion last year.

Source: Editorial, "'Goldilocks' Bush is Wrong," Investor's Business Daily, March 8, 2001.

 

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