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Heritage Foundation Estimates Six-Year Revenue Effect of Reinstating Top Income Tax Rates

SEP. 17, 2004

WebMemo #568

DATED SEP. 17, 2004
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Citations: WebMemo #568

 

The Revenue Effects of Reinstating the Top Tax Rates

 

by Ralph A. Rector, Ph.D.

 

WebMemo #568

 

 

September 17, 2004

 

The House and Senate may soon debate legislation to make permanent the tax cuts enacted in 2001 and 2003. Without action, all of these tax cuts will expire automatically by January 1, 2011. Opponents of the tax cuts have consistently overestimated their cost in revenue.

The Center for Data Analysis at The Heritage Foundation has estimated the six-year (2005-2010) revenue effect of reinstating the top individual income tax rates. The estimated tax increases are:

  • $142.7 billion from increasing the top bracket rate from 35 to 39.6 percent

  • $163.0 billion from increasing the top two bracket rates from 33 to 36 percent and 35 to 39.6 percent.

 

Below are the estimated changes in federal individual income tax (after refundable credits) for reinstating the top bracket and the top two brackets, on a calendar liability year basis.

Calendar Liability     Year Increase Top Rate   Increase Top Two Rates

 

              2005              $21.7 billion            $25.4 billion

 

              2006                       22.3                     25.6

 

              2007                       23.4                     26.9

 

              2008                       23.3                     26.4

 

              2009                       25.7                     29.1

 

              2010                       26.4                     29.6

 

             Total             $142.7 billion           $163.0 billion

 

 

These are static revenue estimates that do not take into account behavioral effects due to the marginal rate changes. Further, they do not include any macroeconomic effects.

Ralph A. Rector, Ph.D., is Research Fellow and Project Manager in the Center for Data Analysis at The Heritage Foundation.

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