The Distributional Effects of the Clinton Tax Proposals

Hillary Clinton, the Democratic candidate for President, has proposed several changes in the Federal tax code, including adding a surcharge of 4% on annual incomes above $5 million, limiting the tax benefits of non-charitable deductions to 28% of their value, ensuring that taxpayers earning more than a million dollars a year pay at least 30% of their income in tax, increasing the tax rates on capital gains for taxpayers in the top tax bracket, expanding the base of the estate tax, and limiting some corporate deductions, most notably for fossil fuel development.

Using a tax calculator model, we estimate that the static effects of these changes would be to raise Federal tax revenue by a total of $816 billion over a ten-year period, an increase of 1.9% over projected baseline revenue. The higher taxes would reduce incomes somewhat, and when these dynamic effects are included, revenue would rise by $615 billion over 2017-2026, or by 1.5% relative to baseline.

Using an extended simulation model, we find that 86% of the incremental tax burden would fall on those in the top tenth of the income distribution; most other taxpayers would see only minor changes in their tax burdens. The revenue and redistributive effects of the proposed changes are thus relatively modest.

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