Modeling the Economic and Distributional Effects of the Senate Tax Bill January 1, 2013 Stephen J. Entin Stephen J. Entin 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% Stay informed on the tax policies impacting you. Subscribe to get insights from our trusted experts delivered straight to your inbox. Subscribe Share Tweet Share Email Topics Center for Economic Analysis Center for Federal Tax Policy Corporate Income Taxes Estate, Inheritance and Gift Taxes Individual and Consumption Taxes Individual Capital Gains and Dividends Taxes Individual Income and Payroll Taxes Tax Modeling Taxes and The Economy Tags Bush Tax Cuts Federal Budget
