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121 IRET Congressional Advisory 1 (2001)

handle is hein.taxfoundation/iretcgadv0118 and id is 1 raw text is: November 16, 2001 No. 121 MAJOR PROVISIONS IN THE STIMULUS PACKAGES: WHICH WORK, WHICH DON'T, AND WHAT TO DO WITH THEM Summary Of Findings And Recommendations Certain fiscal policy measures, those that increase private sector incentives to work and to hire, to save and to invest, to produce and to sell, can boost the economy. Fiscal policy does not work by boosting demand or consumption; measures that try to do so don't work. The House provision for expensing 30% of investment outlays for equipment would be a strong incentive to expand investment, but to have maximum effect it should be made permanent, not just for three years. The inferior Senate Finance provision, 10% expensing for twelve months, is stingy and ineffective fine-tuning. Permanent enhancement of depreciation would be the most effective step to combat the recession and promote growth of employment and wages. The House provision to repeal the corporate Alternative Minimum Tax (AMT) would also boost investment, wages, and employment. (It is not necessary to refund all the past AMT credits in one year. They should be paid back on a fixed schedule over several years, with interest, independently of any other tax liability.) * The House provision to accelerate reduction of the 28% bracket rate to 25% only gives an incentive at the margin to people in that bracket, who produce a bit over a quarter of the national income. The Senate Republican proposal to accelerate all of the rate cuts in the 2001 Tax Act would induce far more economic activity by giving an incentive at the margin to producers of more than 55% of the GDP. The House proposal to make permanent the Subpart F exception deferring tax on foreign source investment income is good tax policy. It is critical to the continued competitiveness and presence of global U.S. financial service businesses. The Senate Finance bill would only extend the exception for one year. The House proposal to reduce capital gains tax rates to 18% and 8% without a five year holding period is a small but useful step. Rebates provide no incentives to work or produce and do nothing to promote economic activity. They, and the unemployment and health care provisions in the various packages, should be viewed entirely as relief measures for people with low incomes, and should only be adopted as additions to, not substitutes for, provisions that would spur investment and growth. From an economic stimulus perspective, agricultural price supports for buffalo meat, subsidies to convert chicken waste to electricity, and paying Amtrak's interest expenses via tax credits on billions of dollars of new bonds are nothing but buffalo chips, chicken waste, and a railroading of the taxpayer. Park the pork! Institute for Research on the Economics of Taxation IRET is a non-profit, tax exempt 501( c)3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, NV., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 9 Fax 202-463-6199 0 Internet www.iret.org

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