Economists say tax reform could help every generation due to higher wages and return on investment.
President Donald Trump’s tax reform framework could raise GDP by as much as 5 percent and wages by as much as 7 percent, according to a new study from Boston University economists.
“We find that, depending on the year considered, the new Republican tax plan raises GDP by between 3 and 5 percent and real wages by between 4 and 7 percent,” the economists explain. “This translates into roughly $3,500 annually more annual real take-home pay for the average American household.”
Economists believe this growth can happen due to the plan’s aim to reduce the marginal effective corporate tax rate from 34.6 percent to 18.6 percent, which they believe will grow the capital stock by 12 to 20 percent.
While critics of the plan have said the tax cuts will add costs to the economy, the Boston University economists say the plan is essentially revenue neutral due to the economy’s expected expansion. They point out that closing corporate tax loopholes helps keep the plan revenue neutral and increased revenues are a result of broadening the tax base.
The study also says every American can benefit from this tax reform framework.
“The [Unified Framework] tax reform delivers small increases in lifetime welfare to current retirees and moderate ones to workers and future generations,” the study states. “All generations benefit from the policy. The old benefit slightly from higher rates of return on their investment, and the young from higher wages.”
The Boston University study is similar to the findings from the Council of Economic Advisers study put out earlier this week, which said that the average household income could increase by $4,000 annually if the corporate tax rate was cut from 35 percent to 20 percent.
“The truth is that a tax cut like this very conservatively will increase the median wage by about $4,000 a year over a relatively short time,” said Kevin Hassett, the chairman of the Council of Economic Advisers. “If you look at some of the more optimistic estimates of the literature and then run the thing over time you could be looking at $10,000, even $20,000 higher wages relative to baseline, and that’s the message of this tax reform.”