House Republicans are committed to fixing our broken tax code.
They’ve introduced a plan to radically alter our outdated tax code and create a flatter, fairer, and simpler system.
Instead of sending money and investments overseas, this plan will grow our economy, raise employment and increase wages for American workers.
A plan to radically reform the US income tax system has been proposed by House Speaker Paul Ryan and House Ways & Means Chairman Kevin Brady. On the personal side, the system would become simpler, fairer and flatter. On the corporate side, the current system would be replaced by a cash flow tax, similar to a value-added tax with a carve out for wages.
The new system would remove the incentive of US companies to send investment dollars and jobs overseas. As a result, there could be a massive inflow of capital – that would significantly raise productivity and wages for workers at all skill levels.
Boston University Prof. Laurence Kotlikoff and Berkeley economist Alan Auerbach are two of the intellectual sources underlying the Republican proposal. Indeed, the business part of the proposal closely resembles a corporate tax reform developed by Auerbach in 2010. Both economists are nonpartisan.
Prof. Kotlikoff recently completed two studies of the plan via The Fiscal Analysis Center. (The Goodman Institute helped establish The Fiscal Analysis Center and helps fund it on an ongoing basis.) The first study, with Auerbach and Darryl Koehler was released in May. It focuses on the tax reform’s progressivity.
A second study, with Seth Benzell and Guillermo Lagarde was just released. It simulates the dynamic economic feedback effects of the House tax plan, using a state-of-the-art global model of economic growth, fiscal policy, and demographic change. The model, called the Gaidar Global model, was built with a team of economists from Moscow’s Gaidar Institute. It features 17 large countries or combinations of countries, which span the entire global economic system. Despite its over 3 million equations, the results are easy to understand and make full economic sense.
Here are some results for the US economy from the two studies.
There is no give away to the rich: the distribution of resources under the reform is “almost as fair” as the current system.
There are no huge deficits: in fact, the plan gains revenue for the government.
There is a boost in wages: about $4,000 in additional wage income in the near term for the average household and larger gains in future periods.