The Joint Committee on Taxation (JCT) has estimated that the President’s budget would increase taxes by $1.2 trillion over 10 years. This is slightly more of a taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. hike than we estimated under our static analysis, which we released last week.
JCT, like us, found no sign of a corporate tax rate reduction. The President has for more many years proposed cutting the corporate tax rate, acknowledging that it is the highest in the developed world, but this year he left it out of his budget.
JCT, like us, found the brunt of the tax increases are on multinational corporations and investors, with smaller tax increases aimed at various out of favor industries, such as oil and gas, banking and insurance. Such a tax increase squarely aimed at business investment can only do severe damage to the economy.
That is in fact what we found in our dynamic analysis: the President’s plan would shrink the economy by 3 percent, reduce wages by 2.4 percent and result in the loss of over 800,000 jobs. By shrinking the economy, the President’s budget would also shrink tax revenue for the federal government by $12 billion annually.
This shows the importance of dynamic analysis, i.e. analysis that allows the overall economy to react to changes in tax policy. Static analysis assumes the economy is unaffected, no matter the tax changes – an assumption that is extremely misleading in this case. JCT should perform a dynamic analysis of the President’s budget, in addition to the static analysis, to give Congress and the general public a more realistic view of the likely economic and budgetary effects.
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