Economic Stimulus Fact Sheet

“The Economic Security and Recovery Act of 2001” was introduced by House Ways & Means Chairman Bill Thomas (R-Ca.) in response to the economic downturn following the September 11 attacks. This bill, HR 3090, attempts to revive economic growth through a combination of tax cuts, pro-business measures, and spending items. It will reduce government revenues by $99.5 billion in Fiscal Year 2002, according to the Joint Committee on Taxation.

The budgetary losses are a result of either tax cuts, which allow taxpayers to keep their money rather than sending it to the U.S. Treasury, or increased spending, which means that the government is spending more of its budget on new spending programs. While the government may count both as a “cost” or a “loss,” there are important distinctions.

Tax cuts do not drain wealth from the private sector; they allow families, entrepreneurs, and businesses to spend or save their income as they see fit. Spending programs, however, take money from taxpayers that is then redistributed by the government based on some sense that the government can spend the money more efficiently. While tax cuts allow markets to allocate resources efficiently, spending programs are a zero-sum game that takes resources from one group to provide benefits to another group. Politics, rather than efficiency, drives these decisions, which suggests that many programs may have little relation to long-term growth or benefits for the taxpayer.

The bill contains the following provisions:

Provisions for Individuals:

Supplemental Rebate

Provides a $300 rebate to those individual filers ($600 to joint filers) that did not receive a rebate check as a result of the Bush tax cut. Those filers who did not receive the maximum rebate in the initial check will receive a supplemental check that brings the total amount received to $300 (or $600 for joint filers). This provision is a spending item, not a tax cut because it redistributes dollars from those who pay income taxes to those who do not. Cost: $13.7 billion.

Accelerated implementation of the 25 percent rate bracket

The Bush tax cut reduced the 28 percent tax rate to 25 percent over a six-year period. The stimulus package would make the 25 percent rate effective in 2002. This would give an incentive to middle-income Americans to work, save, and produce more. This would reduce revenues by $12.8 billion.

Alternative Minimum Tax (AMT) exemption increase

HR 3090 would increase the individual AMT exemption for 2002, 2003, and 2004. This would reduce the number of taxpayers subjected to this tax for the three-year period. This would allow taxpayers to keep an additional $717 million of their money.

Permanent reduction of capital gains tax rates

This proposal would reduce the 10 percent and 20 percent tax rates on capital gains by two percentage points each. Also, it would simplify capital gains taxation by eliminating special rules on long term gain. This provision would reduce revenues by $535 million, though cuts in capital gains taxes could actually increase revenues collected by the government.

Increased deduction on capital losses

Increases maximum deduction for individuals who experience capital losses. This is applicable for 2001 & 2002 only. Revenue reduction: $840 million.

Provisions for Businesses:

Permanent elimination of the corporate alternative minimum tax (AMT).

This bill would completely and permanently eliminate the corporate AMT, which is a system of taxation parallel to normal income taxes that adds undue complexity and increased compliance costs to the tax code. Its elimination would be a significant step toward fundamental tax reform. This provision would keep $25.4 billion in the private sector.

Cost recovery provisions

Currently, businesses cannot fully deduct the cost of capital investments in the initial year of purchase. They must instead make deductions over several years according to complex depreciation schedules. HR 3090 would temporarily accelerate these schedules allowing greater deductions. This would encourage businesses to expand through capital investment. The revenue loss to the government as a result increased expensing and cost recovery provisions: $40.2 billion.

Other Provisions:

In addition to the provisions listed above, approximately $5.3 billion is dedicated to various other items. These include the extension of tax credits for the purchase of electric vehicles ($25 million), work opportunity tax credits ($92 million), and tax credits for electricity production from wind, closed-loop biomass, and poultry litter ($9 million).