Combination 7:

Flat 30 Percent Income Tax with Expanded Credits

Topline Estimates

Gross Domestic Product (GDP)
-3.3%
Gross National Product (GNP)
-1.5%
Full-Time Equivalent Jobs
-3.7M
Wage Rate
-0.4%
Capital Stock
-4.5%
Conventional Primary Deficit Change (10‑Yr)
-$17,349.8B
Dynamic Primary Deficit Change (10‑Yr)
-$13,287.3B
Dynamic Total Deficit Change (10‑Yr)
-$16,029.9B

Source: Tax Foundation General Equilibrium Model.

This option combination replaces the graduated individual income tax with a single flat rate, broadens the base, and expands refundable credits for low-income workers. The combination taxes all individual income at a flat 30 percent, doubles the earned income tax credit for workers without qualifying children, makes the child tax credit fully refundable, and eliminates the home mortgage interest deduction, the charitable deduction, the individual alternative minimum tax, and the SALT deduction.

Moving to a flat 30 percent tax rate increases marginal tax rates for low- and middle-income tax filers, while lowering marginal tax rates for higher income filers. Expanded refundable tax credits both raise and lower marginal tax rates for low-income tax filers, depending where they sit on phase-in and phase-out ranges. Eliminating itemized deductions raises marginal tax rates and increases the tax burden on activities that current benefit from the deductions, including investment in homeowner-occupied housing and charitable giving. On net, this combination raises marginal tax rates on most filers, decreasing hours worked, capital investment, and economic output.

On a conventional basis, this option would decrease the primary deficit by $17,349.8 billion over the budget window. Long-run GDP would fall by 3.3 percent, while long-run GNP would fall by a smaller 1.5 percent because the significant increase in tax revenue reduces interest payments on the debt, offsetting some of the decline in GNP. On a dynamic basis, this option would reduce the primary deficit by $13,287.3 billion, $4,062.6 billion less than the conventional estimate. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be lower than baseline, reaching 67.5 percent by 2056.

On average, taxpayers would see a decrease in their after-tax incomes of 8.4 percent in 2027 on a conventional basis, 8.6 percent by 2036, and 11.1 percent in the long run on a dynamic basis. However, both the bottom quintile and the top 1 percent would experience increases in after-tax income in all years.

Modeled Results

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About the Authors

Erica York Tax Foundation
Expert

Erica York

Vice President of Federal Tax Policy

Erica York is Vice President of Federal Tax Policy with Tax Foundation’s Center for Federal Tax Policy. Her analysis has been featured in The Wall Street Journal, The Washington Post, Politico, and other national and international media outlets.

Garrett Watson Tax Foundation
Expert

Garrett Watson

Director of Policy Analysis

Garrett Watson is Director of Policy Analysis at the Tax Foundation, where he conducts research on federal and state tax policy. His work has been featured in The Washington Post, The Atlantic, Politico, the Associated Press and other major outlets.

Huaqun Li Tax Foundation
Expert

Huaqun Li

Senior Economist, Director of Modeling Projects

Dr. Huaqun Li is Senior Economist, Director of Modeling Projects at the Tax Foundation. She focuses on developing and maintaining the Foundation’s Taxes and Growth Model, which models the budgetary and economic effects of changes to federal tax policy.

William McBride or Will McBride Tax Foundation
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William McBride

Chief Economist & Stephen J. Entin Fellow in Economics

Dr. William McBride is the Chief Economist & Stephen J. Entin Fellow in Economics at the Tax Foundation, where he oversees major research projects primarily related to reforming the federal tax code, advancing sound tax policy, and improving the federal government’s fiscal outlook.

Alex Durante Tax Foundation
Expert

Alex Durante

Senior Economist

Alex Durante is a Senior Economist at the Tax Foundation, working on federal tax policy and model development. Alex worked as a research assistant at the Federal Reserve Board and served as a staff economist on the Council of Economic Advisers.

Alex Muresianu Tax Foundation
Expert

Alex Muresianu

Senior Policy Analyst

Alex Muresianu is a Senior Policy Analyst at the Tax Foundation, focused on federal tax policy. Previously working on the federal team as an intern in the summer of 2018 and as a research assistant in summer 2020. He attended Tufts University, graduating with a degree in economics and minors in finance and political science.

Peter Van Ness Tax Foundation

Peter Van Ness

Research Software Developer

Peter Van Ness is a Research Software Developer at the Tax Foundation working on federal tax policy and model development. Peter previously worked as a research assistant at another think tank and as a data analyst at a consulting firm.

Aleksei Shilov Tax Foundation Research Software Developer

Aleksei Shilov

Research Software Developer

Aleksei Shilov is a Research Software developer at the Tax Foundation working on economic model development and federal tax policy. Aleksei joined the Tax Foundation as an intern in January 2025. He holds a B.S. in computer science and a minor in economics from Northeastern University and is currently based in Boston, MA.

Daniel Bunn Tax Foundation President & CEO
Expert

Daniel Bunn

President and CEO

Daniel Bunn is President and CEO of the Tax Foundation. Daniel has been with the organization since 2018 and, prior to becoming President, successfully built its Center for Global Tax Policy, expanding the Tax Foundation’s reach and impact around the world. Prior to joining the Tax Foundation, Daniel worked in the United States Senate at the Joint Economic Committee.