NCPA - National Center for Policy Analysis

Heritage Study: Growth And Budgetary Effects of Bush Tax Plan

February 23, 2001

How will President Bush's tax plan affect household and government budgets as well as the U.S. economy? To answer that question, the Heritage Foundation's Center for Data Analysis (CDA) conducted a dynamic simulation of the plan's tax relief proposals. Heritage analysts found the Bush plan would significantly increase economic growth and family income while substantially reducing federal debt.

Thus they project that:

  • Under President Bush's plan, an average family of four's inflation-adjusted disposable income would increase by $4,680 in fiscal year (FY) 2011, and the national debt would effectively be paid off by FY 2010.
  • The net tax revenue reduction, after accounting for a larger tax base from higher employment and faster economic growth under the Bush plan, is just $939 billion from FY 2002 to FY 2011, compared to conventional static estimate of $1.6 trillion.
  • The plan would save the entire Social Security surplus and increase personal savings while the federal government accumulated $2 trillion in uncommitted funds from FY 2008 to FY 2011, which could be used to reform the Social Security and Medicare systems and reduce the payroll tax.

Most other analyses of President Bush's tax plan have relied on "static" budget estimates, which do not account for the changes in gross domestic product (GDP), interest rates, employment, hours worked, personal income, savings, and inflation that would result from a reduction in tax rates. By contrast, the CDA analysis uses a dynamic model.

Source: D. Mark Wilson and William W. Beach, "The Economic and Budgetary Effects of President Bush's Tax Relief Plan," February 22, 2001, CDA Report No. 01-01, Center for Data Analysis, Heritage Foundation, 214 Massachusetts Avenue, N.E., Washington, D.C. 20002, (202) 546-4400.

 

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