About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

1 Scott Hodge, et al., Using Dynamic Analysis Makes Tax Reform 30 Percent Less Challenging 1 (2013)

handle is hein.taxfoundation/taxfaaec0001 and id is 1 raw text is: ort August 2013 No. 210 Using Dynamic Analysis Makes Tax Reform 30 Percent Less Challenging Led by Chairman Dave Camp (R-MI), the House Ways and Means Committee is developing a plan to dramatically simplify the tax code, eliminate numerous tax preferences, and cut individual and corporate tax rates. By most accounts, the plan would cut the top corporate tax rate to 25 percent, reduce the highest individual tax brackets to 25 percent, and reduce the 15 percent individual rate to 10 percent. Camp has promised that the plan would be revenue neutral, meaning that broadening the tax base and eliminating numerous tax preferences would offset revenue losses from the rate cuts. In an effort, no doubt, to illustrate the enormity of Camp's task, Congressman Sander Levin (D-MI), the ranking Democrat on Ways and Means, recently asked the Joint Committee on Taxation UCT) to estimate the revenue losses associated with such a tax rate cut plan. JCT's estimate: more than $5 trillion in lost revenues over ten years. Many tax reform advocates may be unsettled by the prospect of eliminating popular tax preferences to offset $5 trillion in lost revenues. Indeed, finding enough loopholes to offset just the corporate rate cut alone may be nearly impossible on a static basis. The JCT estimated that the average cost of cutting the corporate rate would be almost $130 billion annually. Making up this amount would require eliminating nearly everything currently listed as a corporate tax preference in the tax code. Daunting as this may seem, it is important to understand that JCT's analysis is conducted on a conventional, or static, basis, which operates on the unrealistic assumption that these tax rate cuts have no effect on work and investment decisions or on the overall level of GDP. Had Congressman Levin asked JCT to use a more dynamic model, he might have learned that the actual cost of such a plan is nearly 30 percent smaller than it is estimated to be on a static basis. Thus, the amount of base broadening that is needed to make the plan revenue neutral is far less Key Findings * The revenue estimates produced by the Joint Committee on 1Taxation overstate the difficulty of paying for lower individual and corporate tax rates. * Dynamic analysis shows that cutting individual tax rates (as is being considerdJ by Ways and Means) is 21 percent less costly than the static estimate producCJ by 1JCT. Cutting corporate tax rates would bC 59 percent less costly. Combined, these tax cuts would bc 30 less costly than a static estimate. * CLUting individual and corporate tax rates together would boost ;DP by 4.74 percent, increase the capital stock by 11.5 percent, and could increase the number of full-time equivalent jobs by 5.2 million. The average increase in after- tax income across all AT ranges is 7.57 percent. By Scott Hodge, Stephen Entin, & Michael Schuyler

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most