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Letter from Douglas Holtz-Eakin, Director Congressional Budget Office with attached report: An Economic Analysis of Alternatives to Tax Reductions in S. 1637 [i] (February 2004)

handle is hein.congrec/cbo10311 and id is 1 raw text is: February 24, 2004 Honorable Don Nickles Chairman Committee on Budget United States Senate Washington, DC 20510 Dear Mr. Chairman: This letter and the attached report respond to your request of January 16 for an economic analysis of an amendment to S. 1637, the Jumpstart Our Business Strength Act. Specifically, you asked about the effects of a 2 percentage-point cut in the corporate tax rate in three contexts: in general; compared with the provisions of section 102, title II, and title III of the version of S. 1637 reported by the Finance Committee; and compared with a narrowly tailored rate cut limited to domestic manufacturing. You inquired about the impact of that cut on growth, efficiency, jobs, and the competitiveness of U.S. businesses in comparison with businesses in other developed countries. Briefly, our analysis indicates four conclusions. First, an across-the board reduction in the corporate tax rate would improve economic efficiency in all three of the contexts specified. Second, both that cut and one targeted solely toward manufacturing would produce a relatively minor increase in long-term growth compared with the current tax regime and the provisions of S. 1637. Third, none of the alternatives considered would have any significant short-term effect on employment. And fourth, a corporate rate cut would improve the country's international economic position compared with the current tax regime, but it would have roughly the same effects as the tax cuts embodied in S. 1637 or as a rate cut targeted solely toward manufacturing. I hope you find the attached discussion helpful. If you would like further information, we would be pleased to provide it. The staff contact is Thomas Woodward, CBO's Assistant Director for Tax Analysis, who can be reached at 226-2687. Sincerely, Douglas Holtz-Eakin Director cc: Honorable Kent Conrad Ranking Member

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