House Republicans have rolled out a tax reform plan that right-leaning analysts say would make the economy more than 9 percent bigger, wages nearly 8 percent higher and the labor market nearly 2 million jobs larger if it was to be adopted in full.
The analysis by the Tax Foundation is likely to raise some red flags among analysts on the left but will undoubtedly be touted by Republicans – led by Speaker Paul Ryan, R-Wis. – as they seek to build momentum for the first sweeping reform to the U.S. tax code in decades.
Earlier this year, Ryan announced the formation of the six-member Tax Reform Task Force – a group that, as the name suggests, spearheaded an effort to rewrite an existing tax code many on both sides of the political aisle have criticized as being overly porous and complicated. Republicans and Democrats have for years been unable to agree on appropriate income and corporate tax rates, but both sides have repeatedly advocated for a new system.
The group unveiled a proposal late last month that called for the consolidation of the current seven tax brackets to just four, lowered the corporate income tax rate from 35 percent to 20 percent and eliminated federal estate and gift taxes. House Republicans have since dubbed the proposal simply “A Better Way.”
“The way I’d sum it up is: We want a tax code that works for the taxpayers – not the tax collectors. We want to make it simpler, flatter, fairer,” Ryan said in a statement last month. “This is what our country needs. This is a better way.”
And according to the Tax Foundation’s analysis of the plan, it would “significantly reduce the cost of capital and reduce the marginal tax rate on labor.”
“These changes in the incentives to work and invest would greatly increase the U.S. economy’s size in the long run, boost wages and result in more full-time equivalent jobs,” the report said. “On a static basis, the plan would reduce federal revenue by $2.4 trillion, most of the revenue loss being from one-time transitional costs.”
When Tax Foundation researchers adjusted for the expected increase in workers’ wages and the overall size of the economy, however, they concluded the plan would only reduce government revenues by about $191 billion over the next decade to implement on a dynamic basis.
So the Ryan-backed plan is promising growth in excess of 9 percent at a price of less than $200 billion. Compare that to presumptive GOP nominee Donald Trump’s plan – which promises 11.5 percent growth at a dynamic cost of more than $10 trillion, according to a previous Tax Foundation analysis – and House Republicans appear to have the more reasonable plan.
And although the foundation projects presumptive Democratic nominee Hillary Clinton’s plan will increase government revenues by $191 billion, the group estimates her policies will shrink the U.S. economy 1 percent over the course of the next 10 years.
It’s worth pointing out, though, that not everyone is crazy about Ryan’s plan, and there is no consensus on how beneficial it would be to the U.S. economy. The proposal has been lambasted by those on the left, who have criticized it for being too lenient on the nation’s wealthiest. The top individual income tax rate, for example, would be lowered from 39.6 percent to 33 percent.
And other analyses suggest it would cost a lot more than what the Tax Foundation is suggesting. The left-leaning Citizens for Tax Justice group last month estimated the plan would cost in the ballpark of $4 trillion, though its estimates didn’t include the same kind of controversial dynamic calculations used by the Tax Foundation. The group also criticized Ryan’s plan because “the top 0.1 percent of Americans would receive … a 35 percent share of the total tax reductions.”
“The plan includes across-the-board tax cuts for all taxpayers, but these cuts are much smaller for middle- and low-income families, both as a share of their annual incomes and as a share of the entire value of the tax plan,” Citizens for Tax Justice said last month, suggesting that “only the richest 5 percent of Americans would end up better off” as a result of the House plan.
The Tax Foundation’s calculations, though, are generally well-regarded and will undoubtedly bolster House Republicans’ case for sweeping tax reform going forward. Few expect the group of representatives to mount a successful push before President Barack Obama leaves office, considering how vehemently many Democrats oppose some of the House plan’s specifics. But should Trump emerge victorious from November’s election and the GOP dominate the congressional elections, Republicans appear to have a substantive plan to rally behind.