Taxes impinge on individual and business decisions to work, save and invest. Using a dynamic computable general equilibrium model that we created for the National Center for Policy Analysis (the “NCPA-DCGE Model”), we simulate the effects on the U.S. economy of tax proposals by Donald Trump and Ted Cruz. We find that both proposals result in significant positive impacts on output, investment, employment and household well-being, compared to a baseline estimate. We find that the Cruz plan has a stronger positive effect on the economy and causes a smaller decrease in government tax revenue than the Trump plan.
Introduction
Amid the sound and fury of the ongoing 2016 presidential campaign, there has been comparatively little scrutiny of the candidates’ tax reform proposals. With this report, the Beacon Hill Institute begins the process of increasing that scrutiny. In doing so, we apply the academic literature to the problem of explaining the effects of proposed tax changes on wages, earnings, saving and investment. We apply a computer model to simulate the behavioral responses to such tax changes and how they flow through the U.S. economy. This paper summarizes the results of our application of that model to two proposals from out of the presidential campaign.