About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline

LOG IN
LOG IN


1 Stephen Entin & William McBride, Simulating the Economic Effects of Romney's Tax Plan 1 (2012)

handle is hein.taxfoundation/ffddaxz0001 and id is 1 raw text is: FONAINFiscl F act October 3, 2012 No. 330 Simulating the Economic Effects of Romney's Tax Plan By Stephen Entin & William McBride, PhD Introduction The debate over Mitt Romney's tax plan has largely revolved around the short term concerns of who gets what and how much, rather than the more long term concerns of economic growth, job creation, deficit reduction, and tax reform.1 This is unfortunate, especially in a time of record unemployment and debt levels. These serious issues have been put aside to focus particularly on the results of a single study by the Tax Policy Center (TPC),2 which finds Romney's tax plan would require raising taxes on low- and middle- income earners to pay for tax cuts for high-income earners. However, to get there, TPC assumes that tax rates do not matter for economic growth, i.e., Romney's plan to cut income tax rates by 20 percent across the board will have no effect on labor supply or saving and investment decisions. Only among Washington score keepers does such an assumption make sense, but it certainly has no credibility among academic economists.3 Economists recognize that there is more to a tax cut than the immediate increase in wealth of the recipient. There is a change in incentives because there is a change in the law. If investment taxes are lowered, investment increases, because investors expect to keep more of their after-tax returns, and more people become investors. If taxes on wages are lowered, more people work and more people work harder. The benefits from these things spill over beyond the immediate actors. Businesses invest in equipment and new hires, leading to more productive workers, higher wages, and ultimately satisfied customers. If this is trickle 1 William McBride, Romney, Obama, & Simpson-Bowles: How Do the Tax Reform Plans Stack Up?, TAX FOUNDATION FISCAL FACT No. 327 (Sept. 6, 2012), http:-/axf urgation. g/arti n.e/ri nev-oban a- simp o. w-l s -how-d .tax-rem -plans-sla(k. 2 Samuel Brown, William Gale, & Adam Looney, On the Distributional Effects of Base-broadening Income Tax Reform, Urban- Brookings Tax Policy Center (Aug. 1, 2012). 3 Harvey Rosen, Growth, Distribution, and Tax Reform: Thoughts on the Romney Proposal (Working Paper No. 228, Princeton University, Sept. 2012), _trtp_:/i /,x_,priiwenox at eps/s, 228rosenpdf.