Economic Effects of Trump’s Tax Proposals
Using the Tax Foundation’s General Equilibrium Model, we estimate Trump’s tax proposals would increase long-run GDP by 0.8 percent, the capital stock by 1.7 percent, wages by 0.8 percent, and employment by 597,000 full-time equivalent jobs.
We estimate the proposals would increase the 10-year budget deficit by
$3 trillion conventionally and $2.5 trillion dynamically. The debt-to-GDP ratio would increase from its long-run projected level of 201.2 percent to 223.1 percent on a conventional basis and 217 percent on a dynamic basis. Increased deficits and a higher debt load would require higher interest payments on the debt that would reduce American incomes as measured by GNP by almost 0.8 percent; the higher interest payments drive a wedge between the long-run effect on output of 0.8 percent and the long-run effect on GNP of -0.1 percent.
Permanence for the individual, estate, and business tax provisions of the TCJA would increase long-run economic output by a combined 1.1 percent when modeled with the cap on SALT deductions limited to $10,000. However, if Trump’s proposal to “get SALT back” means discontinuing the $10,000 SALT cap, removing the cap from TCJA permanence would boost GPD by an additional 0.7 percent, as the SALT cap creates a burden on labor income as well as housing investment.
Exempting tips, Social Security, and overtime pay from the income tax together boost long-run output by 0.4 percent, most of which comes from exempting overtime pay. Creating an itemized deduction for auto loan interest would lead to a slight additional boost in output.
We modeled Trump’s proposed 15 percent corporate tax rate for domestic manufacturing as a restoration of the prior DPAD set at 28.5 percent to reach an effective corporate tax rate of 15 percent. By lowering the effective corporate tax rate for a subset of corporations,
it would increase long-run economic output by 0.2 percent.
Trump has also proposed eliminating the green energy tax credits put in place by the IRA. Because the IRA tax credits are temporary expansions, we do not find a long-run economic impact from eliminating them.
We estimate the proposal to impose a universal 20 percent tariff on all imports plus additionally raise the tariff on imports from China to 60 percent (the current Section 301 tariffs result in a weighted-average tariff rate on imports from China of about 10 percent), would shrink long-run economic output by about 1.3 percent. To illustrate the potential harms from foreign retaliation, we estimate the impact of a 10 percent tariff on all goods exports plus additional in-kind retaliation on US goods exports to China.
We estimate retaliation would reduce US GDP by an additional 0.4 percent in the long run while raising no additional revenue for the US government.
However, the tax changes Trump has proposed would not be felt evenly across all income groups. In general, Trump has proposed tax cuts that provide a larger relative benefit to higher-income taxpayers,
while his major proposed offset of higher import tariffs falls harder on lower- and middle-income taxpayers.
https://taxfoundation.org/research/a...tax-plan-2024/
Originally Posted by Seran
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