A Dynamic Analysis of Obama's Budget Proposal Shows Productivity Will Be Disrupted
March 6, 2015
President Obama's 2016 budget proposal includes a long list of changes to the United States' current tax system. The plan could reduce Gross Domestic Product (GDP) between 2.4 percent and 3.0 percent, costing the workforce up to 809,000 jobs. The negative effects result from Obama's plan to increase taxes on savings and investments.
Indeed, Obama's budget proposal may also include tax credits and givebacks, but they do not effectively compensate for the added increased taxes. The president's budget proposal includes the following consequences:
- If the revenue available for business tax reform were used to lower the corporate tax rate, it would result in a 3 percentage point cut in the rate — far less than a cut to a 28 percent rate as hoped for by the president's budget.
- With the lower corporate tax rate, the plan would still shrink the economy by 2.4 percent, decrease investment by 6.2 percent, reduce wages by 1.8 percent, eliminate 679,000 jobs, and lose $4 billion in revenue over the long run.
- The plan's focus on redistribution instead of growth results in a reduction of growth that would hurt many people the plan is meant to help.
Congress could avoid damaging the economy by refusing to expand taxable income. They could also deny Obama's plan to restrict deductions and increase taxes on estates and on capital gains at death.
Obama's 2016 budget proposal ultimately hurts capital formation, productivity, wages and employment across the board, but especially in capital-intensive blue-collar industries.
Source: Stephen J. Entin, "A Dynamic Analysis of President Obama\'s Tax Initiatives," Tax Foundation, March 3, 2015.
Browse more articles on Tax and Spending Issues