Accelerating Bush’s Tax Cuts: Revving the Engine of Economic Growth

In May, President Bush signed a pro-growth, $1.35 trillion tax cut. Though many rebate checks have been mailed out, the true growth aspects of the legislation have yet to take full effect. Congress should take action now to speed up the implementation of this tax cut to help promote economic growth. Further, lawmakers should eliminate the 10-year sunset clause that would otherwise repeal the tax cuts in 2011.

What are the components of the tax cut?

The primary elements of the $1.35 trillion tax relief package are an across-the-board cut in marginal tax rates, the elimination of the death tax, increased child tax credits, and marriage penalty relief.

Why should Congress accelerate the tax cut?

Certain aspects of the tax cut will stimulate both investment and consumption. Cutting marginal rates, for example, will lessen the disincentive to work and produce. Eliminating the death tax will reduce the tax code’s disincentive toward saving and investment. In accordance with the tax relief legislation, marginal tax rate cuts and death tax elimination are being slowly phased in over a ten-year period. By speeding up these cuts, we could more quickly encourage production, investment, and saving, all of which would help increase national economic output.

Why does the tax cut expire in 2011?

Complex procedural rules in the U.S. Senate limit the ability of Congress to effect tax revenues beyond a ten-year period. In order to adhere to this rule, all rate cuts must be repealed in 2011. A supermajority vote in the Senate would allow the tax cuts to become permanent.

Why should we make the tax cut permanent?

Making the tax cuts permanent, just like speeding up implementation, would have a stimulative affect on the economy. For example, the reappearance of the death tax in 2011 makes estate planning virtually impossible. Individuals, unable to know when they will pass on, are unable to confidently increase saving and investment because of the looming prospect of the confiscatory death tax. Making the tax cut permanent would give Americans confidence in real and lasting tax relief. This would encourage pro-growth economic activities among individuals and businesses.

Can we afford it?

Yes. It is imperative that we have a healthy and strong economy – especially given the threat of new and unpredictable spending demands on the horizon. If we adhere to spending guidelines and set prudent national priorities, not only can we afford to speed up the tax cuts, make them permanent, and maintain a balanced budget; we can also bolster our economy by promoting investment and economic growth.