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1 Stephen J. Entin & William McBride, The Impact of Speaker Boehner's Millionaire Tax 1 (2012)

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December 20, 2012
No. 347
The Impact of Speaker Boehner's Millionaire Tax
By
Stephen J Entin & William McBride, PhD
In the most recent twist of the fiscal cliff negotiations, Speaker Boehner has offered to allow the Bush tax
cuts to expire for millionaires, meaning in this case those earning literally one million dollars or more in
adjusted gross income. Speaker Boehner intends to put the bill to a vote in the House today, December 20,
2012. It is unclear if the votes are there, but perhaps many are persuaded by the idea that this tax increase
would help pay down the debt. But, as the president has noted, there just isn't enough money there to make
much of a dent. For instance, if all of the income of millionaires were confiscated, it would only cover about
60 percent of this year's deficit.1 And after doing that, millionaires would disappear completely.
The most unfortunate thing is that this debate is happening in static terms and is not taking into account
the negative effects on the economy.2 Our model simulations indicate such a tax increase would in fact have
large negative effects on the economy which are not at all isolated to millionaires. We find this tax increase
would reduce GDP by 0.92 percent, reduce business stocks by 2.41 percent, wages by 0.72 percent, and
hours worked by 0.25 percent. All of this would reduce the actual (dynamic) tax revenue that might be
raised to $7.1 billion per year, and this does not take into account the income shifting that would certainly
occur, e.g., the under-reporting of millionaire income, especially as they react to the tax increase by taking
fewer capital gains and avoiding dividends. As it is, this dynamic revenue represents less than 1 percent of
the deficit. It is also a far cry from the static revenue estimate of $40.1 billion per year. For each dollar of
dynamic revenue raised, this tax increase would reduce GDP by more than $20 dollars (see Table 1).
The tax increase would hit millionaires the hardest, even taking into account the economic effects on the rest
of the economy. It would reduce millionaire's average after-tax income by 4.5 percent. However, it would
reduce the average after-tax incomes of all other income groups as well, though by a smaller amount of
between 0.8 and 1 percent. Overall, it would reduce the average taxpayer's after-tax income by 1.3 percent
(see Table 2).
Scott Hodge & William McBride, Putting a Face on America's Tax Returns: A Chart Book, Chart 29 (Sept. 24, 2012),
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2 This is facilitated by government score keepers, particularly the Joint Committee on Taxation. See Joint Committee on
Taxation, Estimated Effects ofAn Amendment to the Senate Amendment to H.J. Res. 66, the Permanent Tax Relief for Families and
Small Businesses Act of2012,  (Dec. 19, 2012), bgrtg t!iWA) u!fl( s n bmahse tg  -----dedes/j  l  -]---

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