February 15, 2002
Economic Report: Tax Relief Package Created Jobs and Softened Recession
Read the Full Report
A new report released today by the Council of Economic
Advisors provides hard evidence that the tax relief signed into law by
the President last year is creating jobs, has provided a powerful
economic stimulus, has softened the recession, and has laid the
foundation for long run economic growth. According to the report:
- The tax relief will have helped the
private sector create 800,000 more jobs than there otherwise would
have been by the end of 2002.
- Tax relief
has raised the prospects of a solid recovery in 2002 by boosting
economic growth by 0.5 percentage point, lifting the expected growth
rate from 2.2 percent to 2.7 percent.
- Without tax relief, third-quarter growth
would have been much worse, contracting at a 2.5 percent annual rate
instead of the reported 1.3 percent rate. And, in the fourth quarter,
real GDP would have fallen 1 percent instead of the advance estimate
of 0.2 percent growth.
Other Key Facts From the New CEA Report
- Tax relief has provided powerful
stimulus for the future, with reductions in marginal tax rates that
improve incentives and leave in the hands of Americans a greater share of their own money to spend on
consumption, education, retirement investment, or whatever else they
- The tax relief has provided
valuable stimulus to economic activity in the short run. The quick
enactment last year of the President's tax relief plan softened the
recessionary headwinds in 2001 and has helped to put the economy on
the road to recovery in 2002.
- The timing of
the tax rebates and the reductions in withholding proved propitious:
they added significant economic stimulus by boosting consumers'
purchasing power during a period of sluggish economic activity.
- The 2001 tax rate reductions were just the
first step in a series of income tax rate reductions to be phased in
by 2006; by that year the 39.6 percent tax rate will have dropped to
35 percent, the 36 percent rate to 33 percent, the 31 percent rate to
28 percent, and the 28 percent rate to 25 percent. The future rate
cuts increase expected disposable income.
- Tax relief is strengthening families and has
reduced the burden of financing education. The marriage penalty was
reduced for earned income credit recipients, and the child tax credit increased from $500 to
$600 per child in 2001 and will gradually increase to $1,000 by 2010.
Adoption credits have been doubled in 2002 from $5,000 per child in
2001; in addition, this credit will apply to more taxpayers because the income threshold at which
the credit begins to be phased out is $150,000, up from $75,000.
Contribution limits for education savings accounts (formerly called
educational IRAs) were raised to $2,000, and distributions were made
non-taxable. The law also increased the income phase-out range for
student loan interest deductions and made certain higher education
costs tax-deductible for households with less than $130,000 in income.
- Raising taxes, as many in Congress advocate,
would not only lower long-run growth prospects but also jeopardize a
recovery. An increase in taxes would sap the economy of demand, as
individuals and small businesses would see a decline in their
after-tax income. Raising taxes could also adversely affect consumer
and business confidence about the future.