| Brill - what about capital formation OpposingArgument1 #231222 Alex Brill has responded to the TPC's quotation of his paper. While accepting the point about labor supply, he claims that tax reform of the Romney type would lead to increased capital formation and improved allocation of resources in the economy which would boost growth. |
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+Citations (2)
- CitationsAdd new citationList by: CiterankMapLink[2] The Romney Tax Plan: Not a Tax Hike on the Middle Class
Author: Alex Brill - Research Fellow, American Enterprise Institute
Publication info: 7 October 2012 - article in The American online magazine
Cited by: Peter Baldwin 3:19 AM 18 October 2012 GMT
Citerank: (4) 231146The critics challengeCritics of the TPC analysis question the exclusion of two major tax preferences - the exclusion of interest on state and local bonds and the exclusion of inside-buildup on life insurance vehicles. According to the TPC eliminating these exclusions could raise $45 billion in tax revenue.13EF597B, 231149Brill - small is enoughSome commentators point out that only a small dynamic growth effect is needed by the Romney plan - especially when such an effect is considered in conjunction with putting some tax preferences excluded by the TPC back on the table.13EF597B, 231226Obamacare inclusionThe revenue baseline is inflated. The TPC included in its baseline Obamacare taxes which Romney has not pledged to offset. This point is conceded by some defenders of the TPC analysis such as Josh Barro (see citation).13EF597B, 232790Brill articleThe Romney Tax Plan: Not a Tax Hike on the Middle Class1198CE71
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| Excerpt / Summary In addition to the modeling limitation, TPC also misconstrues analysis on the relationship between tax reform and economic growth. Not only does the TPC model assume zero economic growth, but the Center’s analysis (subsequently echoed by many other commentators) points to research I published with AEI colleague Alan Viard to argue that economic growth is not possible from revenue-neutral income tax reform. This conclusion is a false interpretation of our research.
An increase in labor supply is one means by which an economy can grow; as Viard and I pointed out, revenue-neutral tax reform is indeed unlikely to yield gains on that front. But tax reform can also grow the economy by encouraging capital formation and promoting the proper allocation of capital across the economy. Romney’s plan will do just that.
As Viard and I describe in a recent blog post:
Recent discussion of Governor Mitt Romney’s tax reform plan by the Tax Policy Center (TPC) focused on that plan’s implications for work incentives, but that’s just one factor that affects growth ... Governor Romney’s tax plan for individuals would lower statutory tax rates on ordinary income while leaving tax breaks for saving largely untouched. His corporate tax reform plan would further improve the allocation of capital and foster economic efficiency. Overall, the governor’s plan translates into a reduced tax burden on saving and investment, which are key drivers of long-run growth. |