With tax reform in the news and Thursday’s release of the Senate version of the Tax Cuts and Jobs Act, Americans are trying to understand how changes to the tax code will affect their families. The Senate’s plan would grow the economy while simplifying the tax code and reducing marginal rates.
Using the Tax Foundation’s Taxes and Growth (TAG) macroeconomic model, our analysis found that “the plan would significantly lower marginal tax rates and the cost of capital, which would lead to a 3.7 percent increase in GDP over the long term [and] 2.9 percent higher wages.”
The TAG model estimates that the plan would result in the creation of roughly 925,000 new full-time equivalent (FTE) jobs, while increasing the after-tax incomes by 4.4 percent in the long run, meaning families would see an after-tax income boost of 4.4 percent by the end of the decade. The increase in family incomes is due in part from individual income tax reductions and the broader rise in productivity and wages due to economic growth. These estimates take into account all aspects of the Senate version of the Tax Cuts and Jobs Act, including changes to the individual and corporate tax codes.
*Senator Capito spoke about this positive impact in a floor speech yesterday – you can watch the clip here.
The table below illustrates the state-by-state impact of the plan for both new jobs and the boost to after-tax incomes for middle-income families.
|Source: The above income figures are increases in each state’s median income, using data from the U.S. Census Bureau and our Taxes and Growth Model.|
|Note: Our analysis includes corrections made to our model in November 2017, to address concerns raised by the Washington Center for Equitable Growth. Therefore, these results are not directly comparable to the House results issued on November 3, 2017.|
|Estimated FTE Jobs Added||Estimated Gain in After-Tax Income for Middle-Income Family|
|United States Total||925,000||$2,598|
|District of Columbia||5,004||$3,123|