The Economic Effects of Trump 2.0: The Candidate’s Updated Tax Proposal

Special Publications | Taxes


Thursday, September 22, 2016
by Paul Bachman, Keshab Bhattarai, Frank Conte, Jonathan Haughton, & David G. Tuerck

Executive Summary

Compared with other presidential election year cycles, the 2016 campaign takes place in a period of perplexingly slow economic growth. Republican nominee for President Donald Trump has proposed a tax reform plan in order to jumpstart economic growth. The Beacon Hill Institute applied its NCPA-DCGE model to the tax plan and found that the plan would increase real GDP by 9.36 percent and create 3.762 million new private sector jobs by 2026. The NCPA-DCGE model also found that the plan would also lower combined federal, state and local tax revenues by $7.379 trillion over the 10-year period 2017-26.

In a speech to the Detroit Economic Club on August 8, Trump outlined a new, considerably revised tax reform plan. The revisions included a higher top marginal tax rate of 33 percent on personal income, a 15 percent tax rate on business income and 100 percent expensing of investment.

We find that the revised Trump plan would reduce personal income tax revenues by $6.040 trillion over the period of 2017-26, relative to the benchmark projections of the Congressional Budget Office (CBO). Over the same period, estate and gift taxes would be eliminated, costing the treasury $249 billion. On the corporate tax front, the Trump plan would reduce revenues by $2.682 trillion.

In contrast, the plan would boost the tax base for payroll taxes, excise taxes, trade duties and other taxes and fees. As a result, federal revenues from those sources would increase by $577 billion over the ten-year period (Table ES-1).

Relative to the CBO benchmark, the Trump plan would reduce federal revenue by $707 billion in 2017, by $993 billion in 2026, and by $8.394 trillion over the ten-year period 2017-26. State and local taxes would increase by $1.015 trillion over the same ten-year period.

These tax cuts would provide a substantial boost to the private economy. Private sector employment would rise by 3.066 million in 2017. There would be 3.762 million more private sector jobs in 2026 under the Trump plan than under the status quo. Real GDP would be 9.36 percent higher in 2026 than under the CBO benchmark projection. Investment would be 11.7 percent higher.

We assume that government adjusts to a change in revenues by adjusting spending, rather than by borrowing (retiring public debt). Because the Trump plan brings about a substantial revenue decline, we find, using our approach, that it would also cost a substantial number of government jobs: 554,000 in the first year of implementation.

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