Study: Bush's Capital Gains Tax Cuts Provided Stimulus; More Revenue

Reversal Would Hurt Weakening Economy

DALLAS, Jan. 23 /PRNewswire-USNewswire/ -- President Bush's investment tax
cuts helped stimulate the economy and increase government revenue, and raising
the capital gains tax rate, as some are now proposing, would be harmful to the
economy at a time when it is once again in need of stimulus, according to a
new study from the National Center for Policy Analysis (NCPA).

"Some policy makers want to nearly double the tax on capital gains," warned
Stephen Moore, member of the editorial board of the Wall Street Journal and
author of the study. "That is the exact opposite of what our economy needs.
If anything, the rate should be cut further."

Faced with a fragile economy early in his presidency, President Bush responded
with a series of tax cuts, including reduced taxes on capital gains and
dividend income. These measures were designed to stimulate capital investment
and produce more jobs. The study notes that the stimulus package had positive
effects on the economy and government finances. The economy grew, the
government gained revenue and the rich now pay a larger share of taxes than
ever. For example:

-- The rate of business capital investment underwent a U-turn -- from negative
business investment spending in the two years before the tax cut to an average
annual increase of more than 10 percent in the three succeeding years.
-- In the four years since the cut, federal revenues increased $740 billion
and revenues from the capital gains tax nearly doubled to $110 billion.
-- There was a sizable "unlocking effect" from the lower tax rate, meaning
that investors voluntarily sold stock and other assets at a much higher volume
once the tax rate was reduced, nearly doubling the amount of capital gains
realized.

The study notes that the cuts are scheduled to expire after 2010, increasing
the capital gains tax from 15 percent to 20 percent, which is higher than most
developed countries. Some have suggested raising the rate to 28 percent,
higher than the rate when Bill Clinton left office and placing the U.S. at a
competitive disadvantage

"Increasing the capital gains tax rate would have a negative effect on the
economy in both the short and long term," said Moore. "It is critical that
Congress extend the life of these cuts by making them permanent. And they
need to do it sooner, rather than later to help boost the economy and reduce
the growth-dampening effects of uncertainty."

The NCPA is an internationally known nonprofit, nonpartisan research institute
with offices in Dallas and Washington, D. C. that advocates private solutions
to public policy problems. We depend on the contributions of individuals,
corporations and foundations that share our mission. The NCPA accepts no
government grants.

SOURCE National Center for Policy Analysis

Sean Tuffnell, +1-972-308-6481, sean.tuffnell@ncpa.org; Elysa Nelson,
+1-972-308-6477, elysa.nelson@ncpa.org, both of the National Center for Policy
Analysis