• Ending double dividend tax means $384 more yearly income for family of four
• 325,000 new jobs created
• $32 billion in new economic growth seen in Heritage "dynamic scoring" of dividend tax reform proposal

President Bush's economic growth package includes a proposal to eliminate double taxation of stock dividends. Abolishing this unfair double standard in taxation can do much to boost economic growth.

A sophisticated reality-based economic forecast analysis by The Heritage Foundation's Center for Data Analysis (CDA) projects that a proposal similar to the President's would boost economic growth, create jobs and significantly improve family incomes over the next 10 years.

The effects would include:

• More Family Income. Disposable personal income would increase by an inflation-adjusted average of $56 billion or more per year from 2003 to 2012. For a two-earner family of four, disposable income would be increased by an average of $384 per year.
• Fuel economic growth. Gross domestic product (GDP) would increase by an average of at least $32 billion per year (adjusted for inflation) from 2003 to 2012. GDP would be an inflation-adjusted $22 billion higher in 2004 and $45 billion higher in 2012.
• Create more job opportunities. The proposal would increase the number of jobs by at least 325,000 in 2012. This increase in jobs would correspond to a decline in the unemployment rate of no less than 0.2% per year over the next ten years.
• Increase business investment. Non-residential investment would average nearly $25 billion per year (adjusted for inflation) higher between 2003 and 2012. By the end of FY 2012, the net capital stock would be at least an inflation-adjusted $174 billion higher. The user cost of capital would be about 5.4 percent lower in 2012.
  Increase disposable personal income. Disposable personal income would increase by an inflation-adjusted average of $56 billion or more per year from 2003 to 2012. For a family of four, this increase in disposable income would correspond to an average of at least $768 per year.
• Increase personal savings and personal consumption.  Personal savings would average an inflation-adjusted $18 billion higher during the ten-year period. Personal consumption expenditures would average an inflation-adjusted $36 billion.
• Very slightly increase consumer prices. Under this proposal, growth in the consumer price index would average 0.1 percent higher during 2004-2008. Over the final four years of the forecast period, increases in the price level would be virtually unchanged over the inflation in the baseline.
• Slight reduction in federal government's tax collections. The dividend proposal would reduce federal tax revenues by an average of about $12 billion over the first five full years of the proposal. During the final four full years of the proposal, 2009-2012, the tax cut would be virtually revenue neutral, reducing federal revenue by an average of less then $1 billion per year. During the final year of the forecast, federal tax revenue would be slightly higher, than it would be under current law.
• Increase federal spending. If Congress were not to enact reductions in federal spending to offset the tax revenue reductions caused by this tax cut, then overall federal spending would increase under this proposal. Spending would average about $13 billion higher under this proposal. About two-thirds of this increase would result from increases in federal interest payments. The rest would be caused by increases in federal expenditures for income maintenance programs for federal and Social Security retirees. These increases would be caused solely by the increases in consumer prices observed during the years 2004-2008.

Conclusion

This Heritage Foundation report investigates the 10-year economic and fiscal impact of a sample proposal to abolish double taxation on corporate dividends, and finds that such a proposal would, by the year 2012, improve growth in the nation's gross domestic product, add hundreds of jobs to the economy, increase investment, strengthen growth in disposable income, and add to the nation's capitol stock.

Methodology and assumptions, including several charts and graphs, will be introduced upon publication of a full paper - expected the last week of January - written by Norbert Michel, Al Goyburu and Ralph Rector. Nothing contained in this report should be construed as an endorsement of any proposal by The Heritage Foundation or as an attempt to aid or hinder the passage of any bill before Congress.