Executive Summary
Compared with other presidential election year cycles, the 2016 campaign takes place in a period of perplexingly slow economic growth. Secretary Hillary Clinton’s tax proposal, the center of her campaign’s fiscal policy, stresses fairness. To reach “broadly shared prosperity,” in this slow-growth environment, the Clinton tax proposals seek to promote growth and equity by shifting the tax burden to high-income taxpayers. The proposals are clearly predicated on a normative objective to diminish income inequality and to bring greater equity to the tax code. In this report, we focus on the efficiency effects of the Clinton tax proposal, leaving the debate over equity for a separate analysis of distributional effects (Haughton et al. 2016).
The Clinton plan would increase federal revenue by $615 billion over 10 years, with personal income taxes comprising $548 billion of that amount. Over the same period, estate and gift taxes would increase by $75 billion. On the corporate tax front, the Clinton plan would reduce tax subsidies to the oil and gas industry, which would collect an additional $43 billion over a decade.
The NCPA-DCGE model finds that the higher tax rates would negatively affect the tax base for Social Security taxes, excise taxes, trade duties and other taxes and fees. As a result, revenues from these taxes would decrease by $51.5 billion over the ten-year period (Table ES-1). In total, the Clinton tax proposals would increase federal revenue by $54.1 billion in 2017, increase revenues by $70.5 billion in 2026, and increase revenues by $615 billion over the ten-year period. State and local taxes would decrease by $78 billion over the same period.
These tax increases will set off changes in taxpayer behavior. While the public sector stands to gain under the Clinton plan (a boost of 54,000 jobs), the private sector would have 265,000 fewer jobs by 2026. According to the model, Real GDP in 2026 would be 0.9% lower than in the CBO benchmark projection. The higher tax rates would likely reduce economic growth relative to its current sluggish trend, while at the same time leading to a modest reduction in inequality.