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The two major candidates in the 2016 presidential election made sharply different proposals for reforming the Federal tax code. Donald Trump proposed cutting taxes to provide “tax relief for middle-class Americans”, and lowering corporation taxes to boost economic growth, while Hillary Clinton proposed modest increases in taxes on high-income Americans, with a view to increasing the “fairness” of the tax code. We have simulated the effects of these two proposals, using a two-tier modeling design, with a large dynamic computable general equilibrium model to address the macroeconomic magnitudes, linked to a micro-simulation tax calculator model to measure the distributional effects. The Trump proposals would boost economic growth, but sharpening the incentives to work and to save/invest would be regressive, with 70% of the benefits accruing to those in the top income decile. The budget deficit could only be maintained if spending were to be cut sharply; and if spending were reduced more modestly, the deficit would rise greatly. The Clinton proposals would have little net effect on 90% of households, which is at odds with her promise of tax relief for working people, but would reduce net income in the top decile by almost 2%. They would slow economic growth slightly. Although he was elected president, Donald Trump's proposals are likely to be altered, mainly so that the budgetary effects are much smaller, before being presented to Congress. But the rationale, shape, and tone of the proposals will likely remain the same.

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.

By replacing the current income tax with a national sales tax, the FairTax proposal would end the double taxation of saving inherent in the existing tax code and, by doing so, raise output, employment, investment and capital stock relative to the benchmark economy. While these positive effects would be felt almost immediately, the FairTax is very much an investment in the future. Its full benefits would be realized only after the economy achieved a new “steady state,” some 20–25 years into implementation. Only by that point, will the effects on growth have been fully absorbed into the economy and the wellbeing of most households across most income groups improved. The policy choice, then, is between the status quo, and a new policy that would inflict some short-run pain as the price of a permanently expanded economy.

Income and income inequality increased substantially in the UK during the industrial revolution. Income inequality was the highest around 1880.This triggered enactments of more egalitarian tax and transfer system, which halved income inequality by the 1960s. Inequality has risen again with fiscal system reforms in the last five decades. By analysing solutions of a dynamic computable general equilibrium (DCGE) model we show how policies could be designed for the optimal equitable paths of UK economy in the 21st century.

The rising economic value of Outer Continental Shelf (OCS) waters, for oil and gas as well as wind farms, has attracted the attention of abutting states. Thus Louisiana, faced with dwindling revenues from the oil and gas severance tax and high costs of reconstruction after Hurricane Katrina, is again considering the merits of an oil and gas processing tax that would tax OCS production. Such a tax was proposed in 1998, to be levied at a rate of $1.15 per barrel on oil and $0.06 per thousand cubic feet on natural gas. Using a multiequation partial equilibrium model, the authors show that revenue would rise by $1.5 billion in the short run but just $0.2 billion in the long run. The important general finding is that even with a clever tax, it is difficult for a state to appropriate resource rents arising outside its boundaries. Proponents and opponents of the processing tax continue to make exaggerated claims; hence the authors’ second finding is that tax modeling remains essential to help generate light rather than heat.

Opinion leaders and policy makers in the United States have turned their focus to the corporate income tax, which now has the highest statutory rate in the developed world. Using a dynamic computable general equilibrium model (the “NCPA-DCGE Model”), we simulate alternative policies for reducing the U.S. corporate income tax. We find that reductions in the corporate income tax rate result in significant positive impacts on output, investment, capital formation, employment, and household well-being (for almost all deciles). All of the hypothesized reforms also result in a more-streamlined public sector. These results are plausible insofar as the DCGE model from which they are obtained is parameterized by plausible elasticity assumptions, and incorporates the adjustments in prices, output, employment and investment that result from changes in tax policy.

InThe Sensory Order, Friedrich A. Hayek describes the human mind as an “apparatus of classification” that evolves through experience and that reaches decisions by “modeling” the alternative courses of action that are available to it. Hayek's mechanistic conception of mind argues aginst the possibility of central planning and against the cogency of any rule that denigrates “subjective” decision making by employers or other economic agents. As implied by Godel's proof, no brain, human or mechanical, can ever be sufficiently complex to explain itself. There will therefore always be certain knowledge and rules that cannot be articulated to the satisfaction of a central planner or tribunal.

H.R. 25 and S. 25 would replace the federal personal income, corporate income, payroll, capital gains, alternative minimum, self-employment, and transfer taxes with a single-rate federal retail sales tax known as the FairTax. The FairTax also would provide a prebate to each household based on its demographic composition. The prebate is set to ensure that households pay no net taxes on spending up to the poverty level. William G. Gale (2005) and the President's Advisory Panel on Federal Tax Reform (2005) suggest that the effective (tax-inclusive) tax rate needed to implement H.R. 25 is far higher than the proposed 23 percent rate. This study, which builds on Gale's analysis, shows that a 23 percent rate is eminently feasible and suggests why Gale and the panel reached the opposite conclusion.

As specified in Congressional bill H.R. 25/S. 25, the FairTax is a proposal to replace the federal personal income tax, corporate income tax, payroll (FICA) tax, capital gains, alternative minimum, self-employment, and estate and gifts taxes with a single-rate federal retail sales tax. The FairTax also provides a prebate to each household based on its demographic composition. The prebate is set to ensure that households pay no taxes net on spending up to the poverty level. Bill Gale (2005) and the President's Advisory Panel on Federal Tax Reform (2005) suggest that the effective (tax inclusive) tax rate needed to implement H.R. 25 is far higher than the proposed 23% rate. This study, which builds on Gale's (2005) analysis, shows that a 23% rate is eminently feasible and suggests why Gale and the Tax Panel reached the opposite conclusion. This paper begins by projecting the FairTax's 2007 tax base net of its rebate. Next it calculates the tax rate needed to maintain the real levels of federal and state spending under the FairTax. It then determines if an effective rate of 23% would be sufficient to fund 2007 estimated spending or if not, the amount by which non-Social Security federal expenditures would need to be reduced. Finally, it shows that the FairTax imposes no additional real fiscal burdens on state and local government, notwithstanding the requirement that such governments pay the FairTax when they purchase goods and services. Implementing the FairTax rate of 23% would produce $2,586 billion in federal tax revenues which is $358 billion more than the $2,228 billion in tax revenues generated by the taxes it repeals. Adjusting the base for the prebate and the administrative credit paid to businesses and states for collecting the tax results in a net tax base of $9,355 billion. In 2007, spending at current levels is projected to be $3,285 billion. Revenues from the FairTax at a 23% tax rate, plus other federal revenues, are estimated to yield $3,209 billion which is $76 billion less than current CBO spending projections for 2007. The $76 billion amounts to only 2.73% of non-Social Security spending ($2,177 -- $2,101). This is a remarkably small adjustment when set against the more than 30% rise in the real value of these expenditures since 2000. Ensuring real revenue neutrality at the federal level, given the net base of $9,355 billion, implies a rate of 23.82% on a tax-inclusive basis and 31.27% on a tax-exclusive basis. These and other calculations presented here ignore a) general equilibrium feedback (supply-side and demand-side) effects that could significantly raise the FairTax base (see, for example, Kotlikoff and Jokisch, 2005), b) the possibility that tax evasion would exceed the considerable amount automatically incorporated here via the use of NIPA data, which undercount consumption expenditures due to evasion under the current tax system, and c) the roughly $1 trillion real capital gain the federal government would secure on its outstanding nominal debt, were consumer prices to rise by the full amount of the FairTax. The FairTax redistributes real purchasing power from state and local governments to their state and local income-tax taxpayers. It does so by reducing factor prices relative to consumer prices and, thereby, reducing the real value (measured at consumer prices) of state and local income tax payments, which are assessed on factor incomes (namely, factor supplies times factor prices). Gale (2005) and the Tax Panel (2005) recognized this loss in real state and local government revenues in claiming that these governments need to be compensated for having to pay the FairTax. But what they apparently missed is that this loss to these governments is exactly offset by a gain to their taxpayers. Were state and local governments to maintain their real income tax collections -- the assumption made here -- by increasing their tax rates appropriately, their taxpayers' real tax burdens would remain unchanged and there would be no need for the federal government to compensate state and local governments for having to pay the FairTax on their purchases. The second is that H.R. 25 does not preclude state and local governments from levying their sales taxes on the FairTax-inclusive price of consumer goods and services. This produces significantly more revenue compared to levying their sales taxes on producer prices. Moreover, Gale (2005) and the Tax Panel (2005) arrived at a higher tax rate because they did not estimate the Fairtax rate, but instead estimated a sales tax of their own design which had a substantially narrower base.

The attempt was made to determine whether there has been a statistically significant change in the incidence of strokes among women of childbearing age in Bakersfield, California since oral contraceptives (OCs) came into general use in 1960 and whether the change in this incidence is similar to that determined by the staff of the Mayo Clinic in its study of Rochester, Minnesota. Results obtained for each city reveal that both the number and the incidence of strokes were greater during the 1st study period than they were during the 2nd. The incidence of strokes was markedly greater in Rochester than it was in Bakersfield during the 1st study period, but the incidence in each city during the 2nd period was about the same. It is concluded that in neither Rochester nor Bakersfield did the number or incidence of strokes among women of childbearing age increase after OC came into general use. In actuality, strokes decreased.