Sunday, November 4, 2012

Side By Side Economic Growth Comparison Of Romney And Obama Tax Plans: 7 Percent GDP Growth Vs 3 Percent GDP Decline

From Tax Foundation, "A Comparison of the Long-Term Economic Effects of the Obama and Romney Tax Plans" by TF Staff:
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.
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. [Emphasis added.]

Table 1. Romney vs. Obama, Side-by-Side

Comparison of the Economic and Budget Effects of Obama and Romney Tax Proposals
Percent or dollar changes in:
GDP (%)
Private business GDP (%)
Capital stock (%)*
Wage rate (%)
Business hours worked (%)
Federal revenue (static est., $)
Federal revenue (dynamic est., $)
Federal spending ($)
Deficit (+ = reduction, - = increase, $)
% Dynamic revenue reflow vs. static est.**
GDP ($)
GDP / $ dynamic tax change***
Note: All dollar figures are in billions of 2008 dollars. These changes represent the cumulative increase or decrease in the permanent level of GDP and other variables after all economic adjustments to the tax changes, taking five to ten years. They are not permanent changes in the annual rates of growth of the variables. The economic model and tax calculator were run at 2008 income levels, and dollar figures are in 2008 dollars. Romney’s plan was modeled according to the candidate’s specified rate structure, including reduced rates on individuals and corporations, but not his unspecified proposals to reduce tax expenditures. See our earlier report for specifics. Obama’s plan was modeled according to his proposed rate structure as presented in the 2013 Federal Budget, including higher rates on individuals and estates. It does not include Obama’s corporate proposals contained in the February White House/Treasury Framework for Business Tax Reform, which suggests a lower corporate rate of 28 percent combined with a number of revenue raisers that largely offset the rate cut.
*Private business sector equipment, plant, other buildings and structures, inventory, etc.
**Percent of static tax cut recovered (+) due to faster economic growth, or percent of static tax increase lost (-) due to slower economic growth.
***Positive numbers indicate that the government would lose revenue with these cuts, but that economic output (GDP) would rise by the indicated amount for each dollar of revenue lost. Oppositely, negative numbers indicate that GDP would decrease by the indicated amount for each dollar of revenue raised.

Source: Tax Foundation

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