WASHINGTON – The House Republican blueprint for tax reform introduced last month would result in a 9.1% higher GDP over the long term, 7.7% higher wages and 1.7 million more full-time equivalent jobs, the Tax Foundation said on Tuesday.
In a six-page report, the Washington-based research think tank said the plan introduced on June 24 would create a larger economy and broader tax base if enacted, thereby reducing federal revenue by $191 billion over the first decade rather than the $2.4 trillion revenue reduction that would occur if no changes in economic behavior were taken into account as the result of changes in tax policy.
The foundation said it reached the $191 billion estimate after taking into account the plan's marginal tax cuts, pro-growth strategy and its base broadeners.
The plan would reduce the corporate income tax rate to 20%, provide full expensing of capital investment and reduce most marginal tax rates for individuals, which when combined, would cost $8 trillion over the next ten years, the foundation said.
Offsetting this cost, the foundation added, would be the estimated $2.5 trillion in revenue the plan would raise over the next ten years due to a larger economy created by a reduction in marginal tax rates on work, saving and investment. It estimated the plan would boost long-term GDP by 9.1% due to these marginal tax rate reductions.
In its report, The Tax Foundation cited several base-broadening provisions including the elimination of several itemized deductions, the deduction for net interest expenses for businesses, and the border adjustment of business taxes, which it said would further reduce the cost of the plan.
"Combined, these provisions significantly broaden the tax base and reduce the revenue loss of the tax plan by $5.3 trillion over the next decade," the report read.
"The House Republican tax plan would reform both the individual income tax and convert the corporate income tax into a destination-based cash flow tax," the foundation said in its report. "This plan would significantly reduce the cost of capital and reduce the marginal tax rate on labor."
The Republican tax plan, introduced by House Speaker Rep. Paul Ryan, R-Wis., under his "A Better Way Agenda," would reduce the corporate income tax rate to 20% from 35%; reduce the current seven-bracket individual income tax rate to three brackets of 12%, 25% and 33%; and repeal the Alternative Minimum Tax for corporations and individuals. It would also repeal the death tax and the federal estate and gift taxes.
Ryan said the pro-growth plan would make the current tax code "simpler, fairer and flatter" while fellow Republicans have also said it would discourage American companies from relocating overseas for tax purposes.
It has received widespread support from Republicans for its proposed limits on deductions, exclusions and credits. Democrats have taken issue with its overall lack of detail and what they see as its potential to benefit the wealthy and increase the current deficit.
The blueprint does not reference municipal bonds directly, but several muni experts told The Bond Buyer recently that its vague nature and stated goals of repealing unnamed special-interest provisions could hint at an uncertain future for munis.
Protecting the tax-exempt status of municipal bonds is a priority for groups such as the Government Finance Officers Association and Bond Dealers of America, which cite the muni exemption as crucial to funding public infrastructure and other municipal projects.
Both Ryan and Rep. Kevin Brady, R-Tex., who chairs both the House Ways and Means Committee and its Task Force on Tax Reform, have stressed that the plan is still in its draft stages and will be amended as needed before formal legislation is introduced. Brady said lawmakers will continue to seek taxpayer input before Republicans hope to introduce a tax reform bill in 2017.
Brady issued a statement Tuesday in response to the Tax Foundation report, which he said "proves that our blueprint will deliver a tax code built for growth," and will keep revenue neutral in the final legislation.
"As the blueprint indicates, we believe the proper measure of revenue neutrality uses a current policy baseline that reflects the extension of existing temporary tax provisions," Brady said. "With an adjustment to the current policy baseline referenced in the blueprint, the Tax Foundation's analysis will yield a positive revenue result on a dynamic basis."
Previous failed Republican tax reform plans had proposed limiting or eliminating bond interest in order to lower tax rates and broaden the tax base. Whether or not the muni exception will remain under the latest plan has yet to be seen.
Ryan's plan would make sweeping reforms to the Internal Revenue Service, including reorganizing the service into three independent units, installing a new IRS commissioner and requiring taxpayers to submit returns on a postcard.
Meanwhile, the House is scheduled to vote this week on The Financial Services and General Government Appropriations Act, 2017 (H.R. 5485), which would reduce IRS funding by $286 million in fiscal 2017.
