Abstract
Hillary Clinton and Donald Trump, the Democratic and Republican candidates for President of the U.S. in 2016, proposed several changes in the federal tax code. Hillary Clinton would add a personal income tax surcharge of 4% on high annual incomes, limit the tax benefits of non-charitable deductions, set a minimum tax rate of 30% on taxpayers earning more than one million dollars a year, increase the tax rates on capital gains for taxpayers in the top tax bracket, and expand the base of the estate tax. Donald Trump would reduce the number of personal income tax rates, increase the standard personal deduction, cut all taxes on business income to no more than 15%, and abolish the inheritance tax. Using a tax calculator model, we estimate the static effects of these very different changes. Over a ten-year period, Clinton’s proposals would raise federal tax revenue by a total of $816 billion, an increase of 1.9% over projected baseline revenue, while Trump’s tax changes would lower tax revenue by $9.8 trillion. Clinton’s higher taxes would reduce incomes and revenue somewhat, while Trump’s tax cuts would potentially boost output substantially. Using an extended simulation model, we find that 86% of the incremental tax burden of Clinton’s tax increases would fall on those in the top tenth of the income distribution. Most other taxpayers would see only minor changes in their tax burdens, and the revenue and redistributive effects of her proposed changes are relatively modest. Meanwhile, 70% of Trump’s tax cuts would go to those in the top decile, and the effects are large, with gains of over $15,000 annually per person for this group, compared to gains of less than $500 per person for the poorest 40% of the population. On tax policy, the two candidates propose strikingly different policies.
Highlights
Both Hillary Clinton and Donald Trump, the main candidates running for election for president in the U.S in 2016, have offered substantive proposals for changing the structure of federal taxes
Donald Trump would reduce the number of personal income tax rates, increase the standard personal deduction, cut all taxes on business income to no more than 15%, and abolish the inheritance tax
Using an extended simulation model, we find that 86% of the incremental tax burden of Clinton’s tax increases would fall on those in the top tenth of the income distribution; most other taxpayers would see only minor changes in their tax burdens, and the revenue and redistributive effects of her proposed changes are relatively modest
Summary
Both Hillary Clinton and Donald Trump, the main candidates running for election for president in the U.S in 2016, have offered substantive proposals for changing the structure of federal taxes. To measure the distributional effect of the Clinton and Trump tax proposals, we need to work out how the changes would affect different groups in society, from poor to rich For this it is necessary to construct a dataset that includes information, for a sample of households, on income and expenditure.. The IRS dataset provides a good deal of information on sources of income and on the direct taxes paid by individuals, which is why it is so useful in measuring the effects of eliminating direct taxes, but it does not include information on non-filers To fill this gap we turned to the Current Population Survey (CPS) for 2009, from which we extracted records of households that did not file a federal tax return (CPS 2016). A regression of the log of household spending on the income categories crossed interest
Published Version
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