Tuesday, July 12, 2005

Permanently repealing the estate tax would save the government money in the long term and could produce 200,000 new jobs a year, according to a study released today that challenges the official congressional estimate that says the government would lose money.

The study by the American Family Business Institute (AFBI) contends that congressional actuaries have continually underestimated how a cut in taxes increases economic activity and results in an increase in revenues collected by the government. The study says the Joint Committee on Taxation (JCT) wrongly claims repealing the estate tax would cost $140 billion in federal revenues.

“The JCT is grossly overestimating the cost of repealing the death tax,” said Dick Patten, executive director of the AFBI. “The JCT’s method of scoring tax cuts is inherently inaccurate. Its estimates in 1997, 2003 and 2004 completely missed the mark.”

The AFB study cites a finding by David Wyss, the chief economist at Standard and Poors, that determined the capital gain tax cut of 1997 increased federal revenues by $5 billion. The JCT projected a net loss in revenues because of the tax cut.

The JCT and the Congressional Budget Office also underestimated the amount of economic growth Mr. Bush’s 2003 tax cuts would have, the study says.

In the eight quarters since that tax cut was signed into law, growth has averaged 4.4 percent per quarter. Economic growth in the two years before the tax cut averaged just 1.6 percent.

The estate tax has been cut gradually as part of President Bush’s tax-cut packages of 2001 and 2003, but will be completely reinstated if Congress does not make the tax cut permanent by 2010. The House has always easily passed a permanent repeal, the latest on April 15, but it has always failed in the Senate.

Daniel Clifton, the chief economist for the conservative Americans for Tax Reform, said the release of today’s report is intended to assure deficit hawks in the Senate that eliminating the estate tax is fiscally sound.

“We’re putting pressure on those Republicans, telling them that everything’s OK,” Mr. Clifton said.

The White House will update its budget forecast today, boasting of an estimated federal budget deficit of around $325 billion, down $50 billion from estimates earlier this year and way down from last year’s $412 billion deficit.

Rep. John M. Spratt Jr., South Carolina Democrat and ranking member on the House Budget Committee, said he expected Republicans to crow that the tax cuts worked.

“The deficit appears to be lower than anyone expected,” Mr. Spratt said yesterday, but he contends that the Bush tax cuts are making the deficit higher than it would be without them.

Mr. Clifton, however, said the opposite is true, and Congress should continue cutting taxes, starting with the estate tax.

Mr. Clifton said, “60 [percent] to 70 percent of Americans support repealing the estate tax,” citing an April survey by the Tax Foundation. “They think it’s inherently unfair to tax someone throughout their lives and tax them again when they die.”

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