Tax Foundation Analyzes Tax Plans: 10-Year GDP (Trump +6.9%, Hillary -2.6%)
Hillary is negative on GDP, capital investment, wage growth, and jobs. Trump is positive on all four under two different models.
Trump vs. Hillary Plan Comparison
Let’s dive into the discussion with a look at How do Clinton and Trump’s Tax Plans Compare?
Also consider Understanding the Candidates’ Tax Plans. Both articles are by the Tax Foundation. The following snips are from the second link.
Donald Trump Would Cut Taxes Significantly
Donald Trump’s tax plan would significantly cut taxes, while mostly steering clear of the more difficult task of broadening the tax base. His plan would cut the individual income tax for most taxpayers by cutting marginal rates and expanding the standard deduction. He would cut corporate income taxes by reducing the corporate income tax rate from 35 percent to 15 percent and allowing businesses to choose between a deduction for net interest expense and the full expensing of capital investments. His plan would also introduce a number of new childcare expense-related credits and deductions while eliminating both the personal exemption and head of household filing.
Trump’s plan would significantly reduce federal revenues. We estimated that his plan would cut tax revenue by between $5.9 trillion and $4.4 trillion over the next decade, depending on how his plan treats “pass-through” businesses. Most of the revenue loss from his plan comes from his significant individual and corporate rate cuts.
Trump’s plan would also significantly reduce marginal tax rates on work, saving, and investment. As a result, his plan would boost the long-run size of GDP by between 6.9 percent and 8.2 percent. The larger economy would mean higher wages (between 5.4 and 6.3 percent) and an increased level of employment (around 2 million full-time equivalent jobs). The biggest boost to the economy under his plan comes from the much lower corporate income tax rate. The larger economy would end up broadening the tax base and reduce the ultimate cost of his plan. We estimate that his plan would reduce revenues by between $3.9 trillion and $2.6 trillion on a dynamic basis.
Trump’s plan would also make the tax code less progressive than it is today. His tax plan would cut taxes across the board. On average, taxpayers would see an increase in after-tax income of between 3.1 percent and 4.3 percent. However, the plan would cut taxes most for those at the top. The top 20 percent of taxpayers would see an increase in after-tax income of between 4.4 percent and 6.5 percent and those in the top 1 percent would see up to a 16 percent increase in their after-tax income. Ultimately, taxpayers in all income groups would see an increase in their after-tax income once the economy adjusts to its high equilibrium.
Trump’s tax plan would eliminate many complex features of the tax system, such as the AMT, and many business credits. The elimination of these features of the tax code would make filing simpler for both individuals and businesses. However, his plan to change how pass-through businesses are taxed could add significant complexity to the tax code, depending on the final details of that proposal.
Hillary Clinton Would Raise Taxes, but Only on Top Earners
Hillary Clinton’s plan would raise taxes overall in order to fund new programs. Her plan would significantly raise taxes on high-income taxpayers by enacting a 30 percent minimum tax called the “Buffett Rule,” a cap on itemized deductions, and a 4 percent “surtax” on incomes above $5 million. Her plan would also significantly increase the estate tax, especially on very large estates. Her plan would cut taxes for middle-income taxpayers and small businesses. She would expand tax credits for middle- and low-income taxpayers, expand expensing for small businesses, and simplify their taxes.
Clinton’s plan would have the opposite impact on federal collections, but they would be more modest. We estimated that her plan would increase federal revenues by $1.4 trillion over the next decade. All of the next revenue from her plan would come from tax increases on high-income taxpayers.
And while Trump’s plan would reduce marginal tax rates, Clinton’s would modestly increase them. Under Clinton’s plan long-run GDP would be slightly smaller than it otherwise would have been (2.6 percent). This would reduce long-run wages by 2 percent and employment by 700,000 full-time equivalent jobs. The smaller economy would somewhat narrow the tax base. As a result, the plan would not raise as much revenue on a dynamic basis. We found that it would end up raising $663 billion over the next decade.
Clinton’s tax proposals would make the U.S. tax code more progressive. Clinton would increase taxes by 1.2 percent on average, but all of the tax increases would fall on the top. The top 20 percent of all taxpayers would see their after-tax incomes fall by 2.1 percent and the top 1 percent of taxpayers would see their after-tax incomes fall by 6.6 percent. At the same time, Clinton would cut taxes for the bottom 80 percent of taxpayers mainly by expanding the Child Tax Credit. However, we expect that taxpayers in all income groups would see a decline in their after-tax incomes once the economy has adjusted to its new equilibrium.
In contrast to Trump’s plan, Clinton’s tax plan would make the tax code notably more complex. Her plan would add a new minimum tax, a complex cap on itemized deductions, and a new surtax. Some high-income taxpayers may need to calculate their tax burden multiple times under her plan. She would also introduce a number of new credits for businesses to a system that is already littered with extraneous credits and deductions that benefit narrow groups of taxpayers. Although these additions will most burden high-income taxpayers, they do increase the cost of complying with the tax code.
I am not a fan of increased deficit spending. However, Clinton’s tax plan is an absolute disaster with expanded tax code, new minimum taxes, and increased tax code complexity.
Mike “Mish” Shedlock