Long-run Macroeconomic Impact of Increasing Tax Rates on High-income Taxpayers in 2013

Executive Summary ...

This report finds that these higher marginal tax rates result in a smaller economy, fewer jobs, less investment, and lower wages. Specifically, this report finds that the higher tax rates will have significant adverse economic effects in the long-run: lowering output, employment, investment, the capital stock, and real after-tax wages when the resulting revenue is used to finance additional government spending.

Long-run macroeconomic impact of increasing tax rates on high-income taxpayers in 2013

Through lower after-tax rewards to work, the higher tax rates on wages reduce work effort and labor force participation. The higher tax rates on capital gains and dividend increase the cost of equity capital, which discourages savings and reduces investment. Capital investment falls, which reduces labor productivity and means lower output and living standards in the long-run.

Output in the long-run would fall by 1.3%, or $200 billion, in today’s economy.

Employment in the long-run would fall by 0.5% or, roughly 710,000 fewer jobs, in today’s economy.

Capital stock and investment in the long-run would fall by 1.4% and 2.4%, respectively.

Real after-tax wages would fall by 1.8%, reflecting a decline in workers living standards relative to what would have occurred otherwise.

These results suggest real long-run economic consequences for allowing the top two ordinary tax rates and investment tax rates to rise in 2013. This policy path can be expected to reduce long-run output, investment and net worth.

(Excerpt) Read more at nfib.com ...