Jeb Bush’s tax plan would boost economic output by 10 percent and create 2.7 million new jobs, according to a new analysis released Thursday by an outside think tank.
The Tax Foundation, a nonprofit group that generally favors lower taxes and a simpler code, published a note Thursday finding that the GOP presidential candidate’s plan to lower tax rates and cut deductions and loopholes would not only increase economic output, but also boost incomes by around 10 percent across the board.
The group also found, however, that the plan would lose $1.6 trillion in revenues for the government over 10 years in a “dynamic” analysis that includes added tax revenues that would result from faster economic growth. In a static analysis, which does not include the assumption of faster growth, the plan would cost the government $3.6 trillion in revenue over 10 years. Currently, the Treasury is expected to bring in $41.6 trillion over that time period.
Bush’s tax proposal, released Wednesday, would cut the top individual income tax rate to 28 percent and the corporate tax rate to 20 percent, while also including a number of reforms meant to encourage business investment. It would make up some portion of the revenue lost from lowering rates by eliminating popular deductions, credits, and other preferences used by households and businesses to lower their tax bills.
Nevertheless, Bush’s tax plan would either add to the deficit or require him to make cuts elsewhere in the budget, as judged by the Tax Foundation’s assessment.
In calculating the effects of Bush’s proposal, the Tax Foundation used a model very close to one of the models employed by the Joint Committee on Taxation, Congress’ non-partisan, in-house group of tax experts that prepares cost estimates of tax legislation. The Tax Foundation model uses Internal Revenue Service data on tax returns in its estimates.
The model shows that, while Bush’s plan would lower taxes for all income groups, the highest earners would see the biggest benefits. The top 1 percent of income earners would see their after-tax income go up by 11.6 percent in a static analysis, versus 3.3 percent for all taxpayers. Taking into account the added economic growth that would result from the lowered rates and simplified tax system, the top 1 percent would get a 16.4 percent boost, versus 11.3 percent for all taxpayers.
Much of the added growth would be the result of businesses’ added incentive to invest under the provisions of Bush’s tax scheme. The total capital stock would grow by a third over 10 years, according to the analysis.
That is less than the growth the same think tank guessed would result from the tax plan introduced by Marco Rubio, one of Bush’s competitors in the GOP primary. This spring, Rubio and his fellow Republican senator Mike Lee proposed a tax reform that would eliminate taxes on capital gains and dividends, a move that accelerates growth in the Tax Foundation model. The model found that Rubio and Lee’s plan would boost the capital stock by 50 percent and grow economic output by 15 percent.
