Washington (August 30, 1999) – The nearly $800 billion tax cut recently approved by Congress is a modest, balanced and fair effort to give something back to those who are mainly responsible for the surplus: the taxpayers. So concludes a new study released by the National Center for Policy Analysis that is the most in-depth and comprehensive analysis of the congressional tax package to date.
"Critics argue that the congressional tax package is gargantuan and would over stimulate the economy, but this study shows that this is patently false," said NCPA Senior Fellow Bruce Bartlett, the study's author. "Indeed, a strong case could be made for a tax cut considerably larger than the $792 billion over 10 years."
According to the study, federal receipts (tax revenue) as a share of gross domestic product (GDP) are now at their highest level in the nation's history. Indeed, during the first six years of the Clinton Administration, federal receipts as a share of GDP exceeded those of every single year in American history including during World War II, except one.
Also, despite the argument that a $792 billion tax cut over 10 years would break the bank, the tax cut (after setting aside funds to protect Social Security) actually phases in very slowly and will not have any significant effect on revenues before 2002. For example:
- It averages just 0.6% of GDP over the 1999-2009 period, with a peak impact of just 1.3% in 2008.
- In 2008, revenues will still be far above their postwar average at 19.8% of GDP.
- It will be at least 2003 before the 1999 tax cut and the tax cut of 1997 combine to offset the impact of the tax increase of 1993.
In addition to analyzing the overall need for tax relief, the NCPA study details how the average American family stands to benefit from all the tax package's provisions, including:
- Easing the marriage penalty tax by widening the 15% tax bracket and increasing the standard deduction for married couples.
- Abolishing the death tax, which forces many small business and farmers to sell their parents' farm or business just to pay the tax collector.
- Investing in the nation's long-term economic growth and standard of living by extending the tax credit on research and development for an additional five years.
- Encouraging individual savings and investment by raising the contribution limits to individual retirement accounts from $2,000 per year to $5,000.
- Adding an element of fairness to the tax law by indexing capital gains for inflation to prevent the government from taxing fictitious profits.
"In the end, the main justification for a tax cut is that the money belongs to the people who earned it and not the politicians or government bureaucrats who want to spend it," said Bartlett. "History shows that only when their allowance is cut off will they resist their urge to spend."