OECD Economic Outlook 69 - Biblioteca Hegoa

Table I.12. The United States: The President’s Tax Reduction Plan
$ billion
2002 2006 2011
GDP over the whole period, and net federal debt would still be eliminated by 2011. 12
This, however, depends on modest growth in public spending, with discretionary
spending slated to grow at an annual rate of only 1 per cent in real terms. 13 Holding the
expansion of discretionary spending to this rate might be difficult: it is well below the
projected growth in real GDP, and less than a quarter of the growth rate of such spending
in the past three years since a budget surplus emerged. With the Administration planning
spending increases in priority areas, such as basic education and defence, its long-term
budget plan implies very little growth, if any, in other areas of discretionary spending. It
remains to be seen if such flexibility in budget allocation will be politically feasible in an
environment which is still projected to include large surplus revenues despite the tax cuts.
Some spending overruns can be accommodated by drawing on contingency reserves in
the ten-year fiscal plan amounting to $0.8 trillion, but continued fast increases in discretionary
spending 14 would compromise current tax-reduction and/or debt-repayment
plans. The Senate’s non-binding resolution limiting the extent of tax cuts in favour of
higher spending is one sign of the pressure.
The emerging consensus in favour of tax reductions provides an opportunity for
tax reform that could do much both to enhance fairness and to boost economic efficiency.
The proposed reduction in marginal tax rates in the personal income tax system
(Figure I.14) would reduce work disincentives, especially for higher-paid individuals
who may have greater freedom to vary their labour supply than lower-paid individu-
12. The roughly $1 trillion gross debt (around 6½ per cent of GDP) held by the public in 2011 would correspond
to debt that is considered to be “non-retireable” or “non-redeemable”, and would be offset by
government gross claims on the private sector. See Table S-16 in Office of Management and Budget,
A Blueprint for New Beginnings, February 2001. An updated analysis and status report on the Treasury’s
debt management strategy, reflecting comments by the Treasury and the Congressional Budget
Office is provided by the General Accounting Office in “Debt Management Actions and Future Challenges”,
sent on 28 February 2001 to the Chairmen of the Committee on Ways and Means of the
House of Representatives, the Social Security Subcommittee of this Committee, and the Committee
on the Budget of the United States Senate.
13. Over the 2002-2011, the Administration assumes that nominal discretionary spending grows at an
annual rate of just over 3 per cent and that the GDP price index grows at just over 2 per cent. The
implied 1 per cent growth in real discretionary spending compares with an assumed average of 3.2 per
cent for the growth of real GDP. See Tables S-3 and S-14 in Office of Management and Budget, A
Blueprint for New Beginnings, February 2001.
14. For example, if discretionary spending were to continue to rise at an annual rate of 6 per cent in nominal
terms instead of the 3 per cent currently planned, the additional cost to the budget is estimated to
amount to $1.4 trillion over the 2002-2011 period. See Office of Management and Budget, A Blueprint
for New Beginnings, February 2001, page 24.
General assessment of the macroeconomic situation - 29
Total
2002-2006
Total
2002-2011
Reduction in individual income tax rates 11.8 57.3 70.0 165.9 500.7
Creation of a new 10 per cent bracket 5.7 37.4 40.6 108.7 310.6
Phase out of estate taxes 6.0 16.8 57.9 60.2 266.6
Increase child tax credit 1.2 21.0 28.6 57.5 192.7
Tax credit for secondary workers 1.4 12.5 16.0 36.7 111.8
Other 4.5 24.9 37.2 70.2 237.7
Total tax reduction 30.6 169.9 250.3 499.2 1 620.1
Source: Office of Management and Budget, A Blueprint for New Beginnings, February 2001.
The tax cut programme could
do more both to enhance
efficiency and to improve equity
© OECD 2001