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1 Stephen Entin, et al., An Economic Analysis of the Camp Tax Reform Discussion Draft 1 (2014)

handle is hein.taxfoundation/taxfaavb0001 and id is 1 raw text is: TAXt FOUNDATION An Economic Analysis Of The Camp Tax Reform Discussion Draft May. 2014 By Stephen Entin, Michael Schuyler, William McBride No. 219 Key Findings The GDP effect of the domestic provisions of Camp's income tax reform would be to raise the level of GDP very slightly over the long term by about 0.2 percent compared to current law, consistent with the lower end of the Joint Tax Committee's estimates for the proposal. * The improvement in GDP is dependent on a partial inflation adjustment of the depreciation schedules for equipment in the Camp draft. Without the partial inflation adjustment, we find that the Camp plan would reduce GDP relative to current law by about 0.4 percent. * The income tax reform plan would reduce labor productivity and total pre-tax income. However, the after-tax wage would rise due to personal tax rate reductions, encouraging more labor force participation. Reduced labor costs and higher after-tax wages should increase hours worked, equivalent to adding about 486,000 full-time jobs. People would be working longer but producing less total output with less capital. * If the reform plan had retained the current depreciation regime (MACRS), it would generate 6 times the growth and 40 percent more jobs and produce a small revenue gain after economic growth. If it had retained MACRS and allowed a 50 percent exclusion of capital gains and dividends, instead of the 40 percent exclusion in the plan, it would generate 12 times the growth and nearly twice the additional jobs and would result in a significant revenue gain in the long term. * A more fundamental reform-such as replacing the income taxes with a personal expenditure tax or other saving- consumption neutral tax system-could raise GDP by 12 percent to 15 percent and could either return larger revenue to the government for deficit reduction or remain revenue neutral on a dynamic basis to maximize the growth effect.

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