Think tanks score Trump and Clinton tax plans for dynamic effect

Tax Hot Topics: Think tanks score Trump and Clinton tax plansThe Tax Policy Center and Tax Foundation have just updated their revenue scores of the tax platforms of presidential candidates Hillary Clinton and Donald Trump by adding an analysis of the macroeconomic effect. Both think tanks agree that Trump’s plan would create big revenue losses and Clinton’s would generate large revenue increases, but the groups split sharply over the dynamic effects of each plan.

Lawmakers have long argued over whether revenue estimates of tax changes should take into account any impact on the overall economy. If tax changes are expected to lead to increased growth, this growth can increase tax receipts and lower cost estimates. The Joint Committee on Taxation has been required to score certain tax proposals on both a static and dynamic basis since 2015, and how Congress decides to score future reform efforts could have a major impact on tax legislation.

Both the Tax Policy Center and the Tax Foundation produced a pair of dynamic scores. The Tax Policy Center found little dynamic effect using a short-term macroeconomic analysis within the 10-year budget window, but saw a much more significant effect using a long-term analysis in future decades. The Tax Foundation estimated Trump’s plan using two different assumption on how the proposed rate for pass-throughs would operate.

The Tax Policy Center estimated that Clinton’s tax plan would raise $1.36 trillion in new revenue in the next decade based on a static analysis, or $1.33 billion after considering short-term macroeconomic effects. The Tax Policy Center said the proposed tax increases would put a slight drag on the economy that would be partially dulled by reductions in the national debt. Trump’s plan would slash revenue by $6.15 trillion over the next 10 years under the Tax Policy Center’s static analysis, and this cost would not be reduced much by economic gains. The Tax Policy Center’s short-term macroeconomic score cut the cost to $6.03 trillion.

The Tax Policy Center’s findings were immediately attacked by the Trump campaign as inaccurate and partisan. The Tax Policy Center is a joint venture of the Urban Institute and the Brookings Institution. It is generally well respected among economists and tax policy-makers, but is considered to lean left. The Tax Foundation is considered a right-leaning policy center.

The Tax Foundation found that Clinton’s plan would raise $1.43 trillion under a static analysis, very similar to the $1.36 trillion estimate from the Tax Policy Center. But the Tax Foundation estimated that Clinton’s plan would slow growth considerably, limiting her revenue increases after a dynamic analysis to just $663 billion. The Tax Foundation estimated that Trump’s plan would cut revenue by $4.4 to $5.9 trillion depending on how the pass-through rate was structured, and that significant economic growth could reduce this cost to $2.6 to $3.9 trillion.

Contact Mel Schwarz
Partner, Washington National Tax Office
T 202.521.1564

Dustin Stamper
Director, Washington National Tax Office
T 202.861.4144

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