Tensions and passions were high at the California Supreme Court before they even turned to the Gillette Co. v. Franchise Tax Board case deciding whether the Multistate Tax Compact is a binding agreement or a model law...
- The Tax Policy Blog
- Dynamic Benefits of the Tax Reform Panel's Recommend...
Dynamic Benefits of the Tax Reform Panel's Recommendations
The U.S. Treasury's Office of Tax Analysis (OTA) has released a dynamic scoring of the economic benefits of three fundamental tax reform plans—including two plans suggested in the final recommendations of the President's Advisory Panel on Federal Tax Reform last November.
The OTA analyzed two tax plans recommended by the tax reform panel—the "Growth and Investment Tax Plan" and the "Simplified Income Tax Plan"—as well as a progressive consumption tax plan modeled after the late David Bradford's "X Tax."
Here's the bottom line on the likely economic benefits of enacting the tax plans:
This paper examines the economic growth effects of three of the tax reform options discussed by the Tax Panel. We find that the options that move the tax system in the direction of a consumption tax base the most, the Progressive Consumption Tax and Growth and Investment Tax Plan, provide the greatest increases in capital accumulation and national output. This result is consistent with a wide body of previous research...
Table 3 shows the effects of the Progressive Consumption Tax on selected economic aggregates. We expect that a switch to a consumption tax would lead to more saving and investment which would translate into higher levels of output and eventually into higher levels of consumption.
Each of our three models obtains these qualitative results. In the long-run, for example, the capital stock compared to the baseline increases by 27.9 percent in the Ramsey model, 14.0 percent in the OLG model, and by 8.0 percent in the Solow model.
This leads to an increase in national income (Net National Product) of 6.0 percent in the Ramsey model, 2.8 percent in the OLG model and by 1.9 percent in the Solow model, while consumption rises by 5.5 percent in the Ramsey model, 2.2 percent in the OLG model, and 1.9 percent in the Solow model.
These results are similar to other estimates of consumption tax reforms found in the literature.
Here's Table 3 from the paper, which contains the estimates of the plans' effects on growth, labor supply, consumption and more (click to enlarge):
Read the full paper here (PDF).
(Link via Tax Prof Blog.)
Get Email Updates from the Tax Foundation
We will never sell or share your information with third parties.
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.