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GOP Tax Framework Could Raise GDP By 5%, Wages By 7%

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Via:  singled-out-3  •  9 years ago  •  112 comments

GOP Tax Framework Could Raise GDP By 5%, Wages By 7%

President Donald Trump's tax reform framework could raise GDP by as much as 5 percent and wages by as much as 7 percent, according to a new study from Boston University economists.

"We find that, depending on the year considered, the new Republican tax plan raises GDP by between 3 and 5 percent and real wages by between 4 and 7 percent," the economists explain. "This translates into roughly $3,500 annually more annual real take-home pay for the average American household."

Economists believe this growth can happen due to the plan's aim to reduce the marginal effective corporate tax rate from 34.6 percent to 18.6 percent, which they believe will grow the capital stock by 12 to 20 percent.

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While critics of the plan have said the tax cuts will add costs to the economy, the Boston University economists say the plan is essentially revenue neutral due to the economy's expected expansion. They point out that closing corporate tax loopholes helps keep the plan revenue neutral and increased revenues are a result of broadening the tax base.

The study also says every American can benefit from this tax reform framework.  

"The [Unified Framework] tax reform delivers small increases in lifetime welfare to current retirees and moderate ones to workers and future generations," the study states. "All generations benefit from the policy. The old benefit slightly from higher rates of return on their investment, and the young from higher wages."

The Boston University study is similar to the findings from the Council of Economic Advisers study put out earlier this week, which said that the average household income could increase by $4,000 annually if the corporate tax rate was cut from 35 percent to 20 percent.

"The truth is that a tax cut like this very conservatively will increase the median wage by about $4,000 a year over a relatively short time," said Kevin Hassett, the chairman of the Council of Economic Advisers. "If you look at some of the more optimistic estimates of the literature and then run the thing over time you could be looking at $10,000, even $20,000 higher wages relative to baseline, and that's the message of this tax reform."   http://freebeacon.com/issues/report-gop-tax-framework-raise-gdp-5-wages-7/


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Account Deleted
Freshman Silent
2  Account Deleted    9 years ago

It's worth while to read the entire study - link givien in the source article.

...First, our model assumes complementarity between high-low skilled workers and capital. If these factors are closer substitutes (e.g. new capital substitutes for low skilled workers), the wage gains to low skilled workers would be smaller...
(Kind of - gee they might buy a bunch of robots instead of employing low skill workers.)
...But we are concerned that the UF’s personal tax provisions will disproportionately help the top 1 percent. Moreover, revenue neutrality is hardly a desideratum in an economy like ours that has a massive long-term fiscal gap. Hence, we would encourage Congress to modify the Unified Framework tax plan in ways that reduce the apparent redistribution to the rich and that produce addition revenue...
"Average" is a tricky term. Better to see a breakdown by income catagories as to how much extra cash the individual will have.
 
 
 
Krishna
Professor Guide
2.1  Krishna  replied to  Account Deleted @2    9 years ago
It's worth while to read the entire study - link givien in the source article. ...First, our model assumes complementarity between high-low skilled workers and capital. If these factors are closer substitutes (e.g. new capital substitutes for low skilled workers), the wage gains to low skilled workers would be smaller... (Kind of - gee they might buy a bunch of robots instead of employing low skill workers.) Yup. And..."might buy"... Well,of course they already have started doing that. And the trend will only increase with time (regardless of what Trump's plan turns out to be..and if it actually passes the House). (BTW there's a common misconception that a robot will replace a worker. One worker. But the fact is that a robot usually replaces several workers...not just one)
 
 
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