Short-Term Stimulus Necessary, but Permanent Lower Tax Rates Are Critical to Preserving Economy

Economic stimulus will be a centerpiece of President Bush's last State of the Union this evening. The American Council for Capital Formation (ACCF) agrees that a short-term economic jumpstart is necessary, but it should be larger than Bush's proposed package of 1 percent GDP. In the very successful post-2001 recovery, tax cuts averaged about 2% of GDP in the 2003-2006 period.

WASHINGTON, Jan. 28 /PRNewswire-USNewswire/ -- Economic stimulus will be a centerpiece of President Bush's last State of the Union this evening. The American Council for Capital Formation (ACCF) agrees that a short-term economic jumpstart is necessary, but it should be larger than Bush's proposed package of 1 percent GDP. In the very successful post-2001 recovery, tax cuts averaged about 2% of GDP in the 2003-2006 period.

ACCF recently completed a special report on the impact of the post-2001 tax cuts showing that they contributed significantly to economic growth, job creation, and real per capita income during the economic expansion (see http://accf.org/publications/articles/pr-sinai.html). This retrospective analysis, conducted by Dr. Allen Sinai, Chief Global Economist of Decision Economics, Inc., concludes that while easier monetary policy, increased federal spending and globalization also contributed, tax cuts, including lower marginal income tax rates, reduced taxes on capital gains and dividends, and greater incentives for business investment, contributed significantly to economic growth, job creation, and real per capita income during this period.

Economic growth really began to accelerate in 2003 as the tax cuts ramped up, the report concludes. Average GDP growth over 2003-06 was double that of 2001-03. At the end of 2006, the labor market was essentially at full employment, with an unemployment rate of 4.4%. In addition, workers' real wages rose as workers started to catch up after an admittedly long period of rising income and wealth inequality.

"A jumpstart is necessary for the U.S. economy, but policymakers and presidential candidates should look long-term at making the current tax rates for individual capital gains and dividends permanent and maintaining personal income tax rates at present levels," said ACCF Senior Vice President and Chief Economist Margo Thorning. "Doing so would help remove unease about the economy's future, rebuild investor confidence and preserve a key component of the post-2001 recovery."

ACCF President Mark Bloomfield and ACCF Senior Vice President and Chief Economist Margo Thorning are available for interview. For a full copy of the ACCF Special Report, "The Role of Fiscal Policy in The Post-2001 U.S. Economic Expansion," visit http://www.accf.org/pdf/Sinai-Paper.pdf.

The American Council for Capital Formation (http://www.accf.org) is a nonprofit, nonpartisan organization dedicated to the advocacy of tax and environmental policies that encourage saving and investment. The ACCF was founded in 1973 and is supported by the voluntary contributions of corporations, associations, foundations, and individuals.