Modeling the Economic and Distributional Effects of the Senate Tax Bill

January 01, 2013

We have modeled the economic and distributional effects of the Senate tax bill passed last night. The first set of tables below show the results of modeling the basic components within the Senate bill – the 39.6% bracket, the capital gains and dividend tax rate increase to 20%, and the new PEP and Pease phase-out.  There is no business expensing provision in this first set, because the Senate provision is not permanent (1 year extension) and would have no lasting effect on capital accumulation.  The model is run at 2008 income levels, then inflated to 2012 dollars.  First, GDP effects and static and dynamic revenues.  Second, static revenue over the budget window.  Third, distribution tables, static and dynamic.  The second set of tables below does include the effects of a permanet 50 percent expensing provision. 

Economic and Budget Effects of the American Taxpayer Relief Act of 2012, as passed by the Senate January 1, 2013

Rates and PEP & Pease (Billions 2012 $ except as noted)

GDP

-1.38%

Private business GDP

-1.45%

Private business stocks

-3.55%

Wage rate

-1.05%

Private business hours of work

-0.40%

Federal revenue (dynamic)($ billions)

$29.6

Federal spending ($ billions)

-$7.6

Federal deficit (+ = lower deficit) ($ bil.)

$37.2

Static revenue estimate ($ billions)

$80.0

% Revenue reflow vs. dynamic

-63.0%

$GDP ($ billions)

-$217.7

$GDP/$tax increase (dollars)

-$8.0

 

 

Weighted Average Service Price

%Change

Corporate

2.39%

Noncorporate

1.68%

All business

2.18%

 

Static Revenue Estimate Over Budget Window

Rates and PEP & Pease (Billions 2012 $ except as noted)

 

 

CBO Nominal Growth

 

 

Budget window static revenue from top income tax rate of 39.6% and 20% rate on capital gains, dividends at CBO nominal growth rates assuming no change in the amount of realized gains and dividend payments.

 

 

 

2012

 

$80.0

2013

1.008

$80.6

2014

1.062

$85.6

2015

1.062

$91.0

2016

1.062

$96.6

2017

1.062

$102.6

2018

1.045

$107.2

2019

1.045

$112.0

2020

1.045

$117.1

2021

1.045

$122.3

2022

1.045

$127.8

Total

2013-2022

 

$1,042.8

 

Income Distribution

Rates and PEP & Pease (2012 $ except as noted)

 

Average after-tax income per return

 Adjusted Gross Income Class ($)

Static Change

Static % Change

Dynamic Change

Dynamic % Change

< 0

-$2

n.a

$1,327

n.a.

0 - 5,307

$0

0.00%

-$38

-1.31%

5,307- 10,614

$0

0.00%

-$108

-1.26%

10,614 - 21,228

$0

0.00%

-$208

-1.26%

21,228 - 31,842

$0

0.00%

-$337

-1.29%

31,842 - 42,456

$0

0.00%

-$459

-1.30%

42,456 - 53,070

$0

0.00%

-$566

-1.27%

53,070 - 79,606

$0

0.00%

-$756

-1.26%

79,606 - 106,141

$0

0.00%

-$1,040

-1.25%

106,141 - 159,211

$0

0.00%

-$1,346

-1.19%

159,211 - 212,282

-$1

0.00%

-$1,887

-1.21%

212,282 - 265,352

-$4

0.00%

-$2,372

-1.20%

262,352 - 530,704

-$970

0.00%

-$4,420

-1.54%

530,704 - 1,061,408

-$15,033

-0.02%

-$21,714

-3.89%

> 1,061,408

-$154,391

-3.67%

-$188,388

-6.93%

 TOTAL FOR ALL

-$446

-0.46%

-$1,092

-2.09%

With Expensing

The tables below show the results of adding 50% expensing to the Senate 39.6% bracket, the capital gains and dividend increase to 20%, and the new PEP and Pease phase-out.  The expensing provision in this set is assumed to be permanent, which it is not in the Senate bill.  The model is run at 2008 income levels, then inflated to 2012 dollars.  First, GDP effects and revenues static and dynamic.  Second, static revenue over the budget window.  Third, distribution tables, static and dynamic.

Economic and Budget Effects of the American Taxpayer Relief Act of 2012, as passed by the Senate January 1, 2013  

Rates, PEP & Pease, and 50% Expensing (Billions 2012 $ except as noted)

GDP

-0.04%

Private business GDP

-0.05%

Private business stocks

0.11%

Wage rate

0.09%

Private business hours of work

-0.15%

Federal revenue (dynamic)($ billions)

$67.0

Federal spending ($ billions)

$0.3

Federal deficit (+ = lower deficit) ($ bil.)

$66.7

Static revenue estimate ($ billions)

$68.6

% Revenue reflow vs. dynamic

-2.4%

$GDP ($ billions)

-$5.9

$GDP/$tax increase (dollars)

-$0.1

 

 

Weighted Average Service Price

% Change

Corporate

-0.56%

Noncorporate

0.78%

All business

-0.16%

 

Static Revenue Estimate Over Budget Window

Rates, PEP & Pease, and 50% Expensing (Billions 2012 $ except as noted)

 

 

CBO Nominal Growth

 

 

Budget window static revenue from top income tax rate of 39.6% and 20% rate on capital gains, dividends at CBO nominal growth rates assuming no change in the amount of realized gains and dividend payments.

 

 

 

        2012

 

  $68.6

2013

1.008

$69.1

2014

1.062

$73.4

2015

1.062

$78.0

2016

1.062

$82.8

2017

1.062

$87.9

2018

1.045

$91.9

2019

1.045

$96.0

2020

1.045

$100.4

2021

1.045

$104.9

2022

1.045

$109.6

Total

2013-2022

 

$894.1

 

Income Distribution

Rates, PEP & Pease, and 50% Expensing (2012 $ except as noted)

 

Average after-tax income per return

 Adjusted Gross Income Class ($)

Static Change

Static % Change

Dynamic Change

Dynamic % Change

< 0

-$2

n.a.

$52

n.a.

0 - 5,307

$0

0.00%

-$1

-0.03%

5,307- 10,614

$0

0.00%

-$3

-0.03%

10,614 - 21,228

$0

0.00%

-$6

-0.03%

21,228 - 31,842

$0

0.00%

-$9

-0.03%

31,842 - 42,456

$0

0.00%

-$12

-0.03%

42,456 - 53,070

$0

0.00%

-$15

-0.03%

53,070 - 79,606

$0

0.00%

-$20

-0.03%

79,606 - 106,141

$0

0.00%

-$27

-0.03%

106,141 - 159,211

$0

0.00%

-$36

-0.03%

159,211 - 212,282

-$1

0.00%

-$53

-0.03%

212,282 - 265,352

-$4

0.00%

-$73

-0.04%

262,352 - 530,704

-$970

0.00%

-$1,075

-0.38%

530,704 - 1,061,408

-$15,033

-0.02%

-$15,249

-2.73%

> 1,061,408

-$154,391

-3.67%

-$155,602

-5.72%

 TOTAL FOR ALL

-$446

-0.46%

-$464

-0.89%

 

Subscribe to the Tax Foundation Newsletter

Follow Us

About the Tax Policy Blog

Subscribe to Tax Foundation - Tax Foundation's 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.

Monthly Archive