By Richard Borean, The Tax Foundation — Report details the plan’s impact on revenues, jobs, and GDP . . .
Just a few weeks after the House GOP released its tax reform blueprint, Rep. Jim Renacci (R-OH) has released a another fully developed tax plan that seeks to reform the individual income tax code and replace the corporate income tax with a seven percent value-added tax, or “VAT.”
Today, the nonpartisan Tax Foundation released a detailed summary and analysis of the plan’s impact on GDP, wages, job growth, and federal revenues.
The key findings include:
The congressman’s plan would reduce federal revenues by $845 billion on a static basis over the next decade. However, the plan wouldl end up raising revenue when accounting for the increased economic output in the long run.
The plan would significantly reduce marginal tax rates and the cost of capital, which would lead to 5.6 percent higher GDP over the long term and 1.9 million additional jobs.
On a static basis, the plan would lead to 2.1 percent higher after-tax income for all taxpayers and 6.6 percent higher after-tax income for the top 1 percent. When accounting for the increased GDP, after-tax incomes of all taxpayers would increase by an average of 4.4 percent.
This is another interesting development in the tax debate in Washington. The plan is a relatively similar tax cut in terms of size to the House GOP’s plan. However, the ways in which the two plans recoup much of the lost revenue from the cuts are very different. The GOP blueprint relies very heavily on base-broadening provisions to raise revenue. Although Renacci’s plan includes some base broadeners, its additional revenue is largely the result of a newly created VAT.
“VATs are very effective at raising revenue, which is why Congressman Renacci’s plan is able to recoup much of the lost revenue that results from the elimination of the current corporate income tax,” said Scott Greenberg, an analyst at the Tax Foundation. “From lower rates and broader bases to VATs, policymakers are learning that there is more than one way to fix the tax code, and they’re starting to think about the tradeoffs between complexity, revenue, and economic growth. That’s a good thing. These are the kinds of debates we need to see.”
Source: The Tax Foundation. The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels.