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1 A Comparison of the Long-Term Economic Effects of the Obama and Romney Tax Plans 1 (2012)

handle is hein.taxfoundation/ffdeaxz0001 and id is 1 raw text is: FUDTOFiscal Fact November 2, 2012 No. 340 A Comparison of the Long-Term Economic Effects of the Obama and Romney Tax Plans By Tax Foundation Staff Over the past several weeks, Tax Foundation economists have published a series of studies that analyze the long-term economic and distributional effects of the tax plans outlined by President Barack Obama and Governor Mitt Romney. These comprehensive assessments were done using the Tax Foundation's Tax Simulation and Macroeconomic Model which measures how changes in tax policies affect the economic levers that determine economic growth, workers' incomes, and the distribution of the tax burden. Table 1 and Figure 1, below, compare the model's key economic results for each of the candidates' main plans. For the sake of simplicity, the results shown here for Governor Romney's plan do not include the deduction caps (17 and 25 percent) Romney recently floated. We have analyzed their effects separately. The results shown here for Obama's plan do not include his corporate tax proposals (because the lack of specificity made modeling them difficult) or the new taxes contained in the Affordable Care Act (ACA). However, we did model these taxes separately. As the table indicates, the candidates' tax plans would have a starkly different impact on the economy. The Romney plan, which would reduce tax rates on individuals and corporations, would increase GDP 7.4 percent over the long run. The Obama plan, which would raise tax rates on individuals, would reduce GDP 2.9 percent over the long run. These very different futures are the direct consequence of the candidates' very different approaches to taxing the inputs of production, i.e., capital and labor. Obama would raise taxes on investors, which would reduce the capital stock by 7.5 percent. Romney would reduce taxes on investors, which would increase the capital stock by 18.6 percent. Obama would raise taxes on labor, which would reduce the wage rate by 2.3 percent and hours worked by 0.7 percent. Romney would reduce taxes on labor, which would increase the wage rate by 4.7 percent and hours worked by 2.9 percent. However, Obama's plan does raise more tax revenue, even after accounting for macroeconomic affects. Obama's plan would raise $41 billion while Romney's plan would lose $136 billion (without including any unspecified tax offsets such as the 17 percent deduction cap). But the larger question is at what cost to the