Bush's Plan, Inefficient and Will Not Stimulate the Economy
Press Release - Greenstein Assesses Bush's Plan
Center on Budget and Policy Priorities
January 15, 2003
Robert Greenstein, executive director of the Center on Budget and Policy Priorities, said today that the $674 billion "growth package" unveiled by President Bush "represents a radical departure from past, bipartisan actions to help the economy recover from downturns." Greenstein commented that "the plan is remarkable in a number of respects. It is remarkably inefficient as stimulus, costing $674 billion to inject about $100 billion into the economy in 2003, when the economy is weak; remarkable in its fiscal profligacy, swelling budget deficits for years to come; and remarkably tilted toward those at the pinnacle of the income scale, the very group that gains the most from last year's tax cut."
Greenstein noted that "while the plan contains middle-class tax cuts, they are temporary. The middle-class tax cuts simply accelerate tax cuts already enacted. By contrast, the most affluent Americans would receive a lavish new tax cut that is permanent, the elimination of taxes on corporate dividends." He added "over time, middle-class families could be net losers. There is no 'free lunch,' and these tax cuts ultimately would have to be paid for, either through higher interest rates and slower economic growth caused by swollen deficits or through budget cuts, most likely in programs for the middle class and the poor."
He also said that states and working-poor families would likely be immediate losers. States would lose because the dividend tax cut would cost state treasuries $4 billion to $5 billion a year, and the plan contains no offsetting fiscal relief. Working-poor families would lose because they would receive no tax cuts (the plan fails to accelerate the components of last year's marriage penalty relief and child credit expansion that focus on the working poor), and these families could be adversely affected by deeper state budget cuts and higher interest rates.
The full text of Greenstein's statement follows:
The Administration's $674 billion growth package represents a radical departure from actions taken during previous downturns by Presidents and Congresses of both parties. The proposal is striking in a number of respects.
There is no "free lunch." These tax cuts ultimately would be paid for either by swelling the deficit, which in the long run would likely result in higher interest rates and less economic growth, or by deep budget cuts, most likely in programs for the middle class and the poor. Over time, middle-class families could well be net losers.
Millions of the low-income working families that pay payroll tax but do not earn enough to owe income tax - such as a married couple with two children that earns $20,000 a year - could lose because they apparently would receive no tax cuts but could face higher interest rates on purchases they make and be subject to deeper budget cuts in state-financed programs. Interest rates would likely rise for two reasons: 1) eliminating the tax on dividends would make stocks relatively more attractive than bonds, causing interest rates on bonds to rise in order to attract sufficient capital and thereby raising interest rates throughout the economy; and 2) the increase in long-term deficits would likely exert upward pressure on long-term interest rates. Such increases in interest rates would raise the cost of home mortgages and loans for cars and household purchases.
The Center on Budget and Policy Priorities is a nonprofit, nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs. It is supported primarily by foundation grants.
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