Economic Analysis Of Romney Tax Plan Shows 6.8 Million Additional Jobs Created And Higher GDP Growth

From "The Economic Effects Of The Romney Tax Plan" by John W. Diamond, Ph.D., Edward A. and Hermena Hancock Kelly Fellow in Public Finance, James A. Baker III Institute for Public Policy, Rice University:

Executive Summary

There is widespread recognition that the U.S. income tax is a complex, highly inefficient, and costly way of raising revenues to finance government expenditures. In this paper, I analyze a rough sketch of the Romney Tax Plan—a rate-reducing, base-broadening tax reform. The simulations show that such a base-broadening, rate-reducing reform would have significant positive economic effects on the U.S. economy, including increases in investment, the capital stock, employment, and real wages. These gains are in addition to increases in GDP, investment, consumption, and employment that will occur as the U.S. economy continues to recover from the recent recession and as the population grows. Specifically, I find that the reform would, if passed immediately, increase GDP relative to baseline by 5.4 percentage points over the next decade, while creating 6.8 million jobs.

The paper's author states:

Versions of the model have been used in analyses of tax reforms by the U.S. Department of the Treasury (President’s Advisory Panel on Federal Tax Reform 2005), the Congressional Joint Committee on Taxation (Joint Committee on Taxation 2003), and in a number of other recent tax policy studies (Diamond and Zodrow 2007, 2008; Diamond and Viard 2008; Carroll, Cline, Diamond, Neubig, and Zodrow 2010; and Zodrow and Diamond, forthcoming).

[HT: Greg Mankiw]