NCPA - National Center for Policy Analysis

Why Cut Taxes Now?

December 19, 2000

President-elect Bush is apparently sticking with his plan for a projected $1.3 trillion tax cut over 10 years. There are a number of reasons to cut taxes, say observers.

1. Taxes are too high.

  • Last year, federal tax revenue as a percentage of the economy reached a historic peak -- 20.4 percent of gross domestic product.
  • An increasing chunk of that revenue is coming from federal income taxes, which rose to 9.9 percent of GDP last year from 7.8 percent in 1994.
  • In 1997, according to the most recent data available, the average federal income tax rate on all taxable returns was 15.3 percent -- the highest level since the mid-1980s.

2. Marginal rates are too high.

  • They have climbed from the original Reagan tax program's percentages of 15-28-33 percent to the Clinton tax hikes of 15-28-31-36-39.6 percent.
  • Real bracket creep -- what happens as wages and salaries increase with economic and productivity growth -- has pushed people who aren't "the wealthy" into higher brackets.
  • The tax rates people actually pay are higher because the 1990 tax bill

disallowed deductions and phased-out exemptions; as a consequence, revenue has grown faster than national income for the past eight years.

3. Economic growth is slowing.

  • Oil prices were $10 to $20 a barrel two years ago; they have been around $30 a barrel for nine months.
  • Natural gas prices have almost quadrupled since last year.
  • Consumer debt is at its highest level in 20 years.

Finally, Congress has spent the surplus created by tax overpayments the past two years. And nondefense, discretionary spending will soar almost 13 percent this fiscal year, according to Stephen Slivinski of the Cato Institute.

Source: Editorial, "The Bush Tax Cut," Wall Street Journal, December 19, 2000.


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