PWBM projects public debt-to-GDP ratios of more than 210 percent by 2050. As explained in a companion piece, even in today’s low-interest rate environment, government debt decreases economic growth by crowding out private investment. Less growth results in lower standards of living in future generations.
Below, we present estimates for a wide array of policy options for reducing government debt, including potential changes to taxes, Social Security, Medicare, and discretionary spending. These policy options are grouped into broad categories: raising taxes on the wealthy, entitlement reform, and broad-based reforms. We therefore also present estimates for each of these broad categories, assuming that all policies within that group are implemented together.
Users can use the drop-down to select a policy or combination of policies. For each policy, we briefly summarize its changes to current law and then present three sets of results:
- Conventional effects on spending or revenues over the budget window, not including macroeconomic feedback effects.
- Macroeconomic effects, including changes to GDP, the capital stock, labor supply and wages, and debt.
- Dynamic distributional effects by age and income groups in 2022 (i.e., at the time the policy is implemented). This “equivalent variation” measure, discussed previously, summarizes the average lifetime economic effect of a policy on a specific demographic group, and includes welfare effects from macroeconomic changes, insurance value of new policies, and changes in the “implicit debt” of Medicare and Social Security obligations. A positive value indicates that on average the demographic group would be better off economically under the policy.
Table 1. Conventional Effects
Billions of dollars, Change in primary surplus relative to current-law baseline
Table 2. Macroeconomic Effects
Percent Change from Baseline unless otherwise indicated
Table 3. Dynamic Distributional Effects
To analyze the budgetary and economic effects of the above policies, Penn Wharton Budget Model integrates four main components: the Microsimulation Model (Microsim), Tax Module, Social Security Module, and Dynamic OLG Model. This layered approach allows PWBM to capture more complexity and important behavioral effects than could fit in a single, isolated model.
The Microsim is a computational tool that simulates the population and economy of the United States, projecting a rich array of more than 60 demographic and economic variables. The motion of this population over time, generally beginning in the mid-1990s, is calibrated and validated to capture the momentum of demographic and economic shifts in the United States. Aggregating the simulated population's labor and capital supplies and combining with productivity growth factors yields conventional projections for the economy as a whole. Detailed technical documentation of the Microsim is available at this link.
PWBM’s Tax Module is layered on top of the Microsim, using demographic and economic projections from the Microsim to inform how the population of tax units evolves over time. The Tax Module includes detailed tax calculators for individual income taxes, payroll taxes, corporate taxes, and estate taxes. It also simulates behavioral responses to changes in tax policy, calculating conventional estimates of the budgetary effects of tax policies as well as effective tax rates for different demographic groups. See further documentation at this link.
Similarly, PWBM’s Social Security Module layers a sophisticated benefits calculator on top of the Microsim. All major elements of benefits policy are parameterized, allowing for detailed analysis of reform proposals that highlights how structural shifts in demographic and economic forces affect Social Security’s finances. The Module’s outputs include budgetary aggregates, such as trust fund exhaustion date and 75-year balance, as well as simulated microdata files. See further documentation at this link.
The final layer is PWBM’s Dynamic Overlapping-Generations (OLG) Model, which blends state-of-the-art macroeconomic theory with practice. The OLG model takes tax and demographic inputs from the Tax Module and Microsim, respectively, and allows agents to make decisions based on macroeconomic changes as well as their expectations about the future. Crucially, the model allows for unbalanced reforms that increase or decrease government debt. Further documentation is available at this link.
Prepared by PWBM staff.
ScenarioID ScenarioDescription 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Budget Window 1 Taxes on the wealthy: Combined package 266 373 394 413 424 434 442 448 464 490 4148 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent 59 80 83 87 90 95 92 87 88 91 852 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death 50 66 70 77 76 77 82 86 92 101 776 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income 15 20 21 22 19 18 19 19 19 20 193 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million 2 15 21 22 22 15 12 13 13 14 148 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million 100 131 133 135 141 148 155 163 171 180 1457 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent 39 58 62 67 76 83 85 86 86 90 733 8 Entitlement reform: Combined package 269 334 351 371 388 411 440 464 494 528 4051 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI 2 5 8 11 14 17 20 23 26 30 155 10 Entitlement reform: Make the Social Security benefit formula more progressive 0 0 0 1 1 2 4 5 7 9 29 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 0 0 1 1 3 5 11 17 28 37 103 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent 106 139 142 146 149 152 157 162 166 171 1490 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold 59 78 80 83 84 87 90 92 95 99 848 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 12 13 14 14 15 16 17 18 20 21 161 15 Entitlement reform: Allow Medicare to negotiate drug prices 82 89 96 103 111 119 128 134 141 149 1152 16 Broad-based reform: Combined package 202 273 294 316 522 608 646 681 720 771 5033 17 Broad-based reform: Enact a 1 percent value added tax (VAT) 50 78 80 83 86 89 92 95 98 101 852 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards 0 3 8 15 24 36 50 66 87 112 399 19 Broad-based reform: Disallow all itemized deductions 78 104 109 114 301 369 386 400 414 434 2708 20 Broad-based reform: Cut annual discretionary spending by 5 percent 69 70 71 73 74 75 76 76 76 76 736 21 Broad-based reform: Cut annual infrastructure investment by 10 percent 5 18 26 31 34 35 36 37 37 37 296
ScenarioID ScenarioDescription Series 2025 2030 2035 2040 2045 2050 1 Taxes on the wealthy: Combined package Gross domestic product 1.6 1.3 1.6 1.8 2.1 2.4 1 Taxes on the wealthy: Combined package Capital stock 4.6 4.1 5 5.7 6.5 7.4 1 Taxes on the wealthy: Combined package Hours worked 0.4 0.2 0.2 0.2 0.3 0.3 1 Taxes on the wealthy: Combined package Average wage 1.2 1.1 1.4 1.6 1.8 2.1 1 Taxes on the wealthy: Combined package Debt-to-GDP ratio, baseline 119 127 141 161 183 210 1 Taxes on the wealthy: Combined package Debt-to-GDP ratio, policy option 118 118 125 137 151 168 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent Gross domestic product 1 0.5 0.5 0.6 0.7 0.8 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent Capital stock 2.9 1.7 1.9 2.2 2.4 2.7 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent Hours worked 0.3 0.1 0 0.1 0.1 0 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent Average wage 0.7 0.4 0.5 0.6 0.7 0.8 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent Debt-to-GDP ratio, baseline 119 127 141 161 183 210 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent Debt-to-GDP ratio, policy option 119 125 138 155 176 200 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death Gross domestic product 0 0 0 0 0 0 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death Capital stock 0 0 0 -0.1 0 0 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death Hours worked 0 0 0 0 0.1 0.1 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death Average wage 0 0 0 -0.1 0 0 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death Debt-to-GDP ratio, baseline 119 127 141 161 183 210 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death Debt-to-GDP ratio, policy option 119 126 139 158 179 204 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income Gross domestic product 0 0 0.1 0.1 0.1 0.1 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income Capital stock 0.1 0.1 0.2 0.3 0.3 0.4 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income Hours worked 0 0 0 0 0 0 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income Average wage 0 0 0.1 0.1 0.1 0.2 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income Debt-to-GDP ratio, baseline 119 127 141 161 183 210 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income Debt-to-GDP ratio, policy option 119 126 139 158 180 205 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million Gross domestic product 0 0 0 0 0.1 0.1 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million Capital stock 0 0 0.1 0.1 0.1 0.2 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million Hours worked 0 0 0 0 0 0 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million Average wage 0 0 0 0 0 0.1 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million Debt-to-GDP ratio, baseline 119 127 141 161 183 210 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million Debt-to-GDP ratio, policy option 119 126 140 159 181 207 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million Gross domestic product -0.2 -0.2 -0.2 -0.3 -0.4 -0.4 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million Capital stock -0.3 -0.5 -0.6 -0.9 -1.1 -1.2 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million Hours worked 0 0 0.1 0.1 0.1 -0.1 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million Average wage -0.2 -0.2 -0.3 -0.4 -0.5 -0.4 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million Debt-to-GDP ratio, baseline 119 127 141 161 183 210 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million Debt-to-GDP ratio, policy option 118 125 138 156 177 203 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent Gross domestic product 0.8 1.1 1.3 1.5 1.7 2 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent Capital stock 2.1 2.9 3.7 4.3 5 5.8 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent Hours worked 0.2 0.2 0.1 0.2 0.2 0.1 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent Average wage 0.6 0.9 1.2 1.4 1.5 1.8 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent Debt-to-GDP ratio, baseline 119 127 141 161 183 210 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent Debt-to-GDP ratio, policy option 119 124 135 151 169 191 8 Entitlement reform: Combined package Gross domestic product -0.7 -0.5 0.9 2.3 3.8 5 8 Entitlement reform: Combined package Capital stock 0.3 1 2.3 4.2 6.6 9.5 8 Entitlement reform: Combined package Hours worked -0.9 -1 0.5 1.8 3 3.5 8 Entitlement reform: Combined package Average wage 0.2 0.5 0.4 0.4 0.7 1.4 8 Entitlement reform: Combined package Debt-to-GDP ratio, baseline 119 127 141 161 183 210 8 Entitlement reform: Combined package Debt-to-GDP ratio, policy option 113 111 111 113 116 118 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI Gross domestic product 0.1 0.1 0.1 0.2 0.2 0.2 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI Capital stock 0.1 0.2 0.3 0.4 0.5 0.6 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI Hours worked 0 0 0 0 0 0 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI Average wage 0 0 0.1 0.1 0.1 0.2 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI Debt-to-GDP ratio, baseline 119 127 141 161 183 210 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI Debt-to-GDP ratio, policy option 119 126 140 159 180 205 10 Entitlement reform: Make the Social Security benefit formula more progressive Gross domestic product 0 0.1 0.1 0.2 0.2 0.4 10 Entitlement reform: Make the Social Security benefit formula more progressive Capital stock 0.1 0.2 0.4 0.6 0.9 1.3 10 Entitlement reform: Make the Social Security benefit formula more progressive Hours worked -0.1 -0.1 -0.2 -0.2 -0.2 -0.2 10 Entitlement reform: Make the Social Security benefit formula more progressive Average wage 0.1 0.1 0.3 0.3 0.4 0.6 10 Entitlement reform: Make the Social Security benefit formula more progressive Debt-to-GDP ratio, baseline 119 127 141 161 183 210 10 Entitlement reform: Make the Social Security benefit formula more progressive Debt-to-GDP ratio, policy option 119 127 141 160 182 207 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 Gross domestic product -0.1 -0.1 1 2.1 3.2 4 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 Capital stock 0 0.2 0.9 1.9 3.2 4.7 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 Hours worked -0.3 -0.4 1.1 2.4 3.6 4.1 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 Average wage 0.2 0.3 -0.1 -0.3 -0.3 -0.1 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 Debt-to-GDP ratio, baseline 119 127 141 161 183 210 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 Debt-to-GDP ratio, policy option 120 127 138 153 168 185 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent Gross domestic product 0 0 0.1 0.2 0.2 0.3 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent Capital stock 0.1 0.2 0.4 0.6 0.8 1 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent Hours worked -0.2 -0.1 -0.2 -0.1 -0.1 -0.1 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent Average wage 0.1 0.2 0.2 0.3 0.3 0.5 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent Debt-to-GDP ratio, baseline 119 127 141 161 183 210 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent Debt-to-GDP ratio, policy option 118 123 135 152 172 196 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold Gross domestic product -0.6 -0.6 -0.6 -0.6 -0.5 -0.4 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold Capital stock -0.3 -0.4 -0.5 -0.4 -0.3 -0.1 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold Hours worked -0.3 -0.3 -0.2 -0.2 -0.2 -0.2 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold Average wage -0.3 -0.3 -0.3 -0.3 -0.3 -0.2 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold Debt-to-GDP ratio, baseline 119 127 141 161 183 210 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold Debt-to-GDP ratio, policy option 117 120 130 145 163 184 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 Gross domestic product 0 0.1 0.1 0.2 0.2 0.3 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 Capital stock 0.1 0.3 0.4 0.6 0.7 0.9 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 Hours worked 0 0 0 0 0 0 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 Average wage 0.1 0.1 0.1 0.2 0.2 0.3 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 Debt-to-GDP ratio, baseline 119 127 141 161 183 210 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 Debt-to-GDP ratio, policy option 118 125 138 156 177 202 15 Entitlement reform: Allow Medicare to negotiate drug prices Gross domestic product 0 0.1 0.2 0.2 0.3 0.5 15 Entitlement reform: Allow Medicare to negotiate drug prices Capital stock 0.2 0.3 0.5 0.7 1 1.4 15 Entitlement reform: Allow Medicare to negotiate drug prices Hours worked 0 0 0 0 0 0 15 Entitlement reform: Allow Medicare to negotiate drug prices Average wage 0.1 0.1 0.2 0.2 0.3 0.5 15 Entitlement reform: Allow Medicare to negotiate drug prices Debt-to-GDP ratio, baseline 119 127 141 161 183 210 15 Entitlement reform: Allow Medicare to negotiate drug prices Debt-to-GDP ratio, policy option 118 124 137 154 174 198 16 Broad-based reform: Combined package Gross domestic product 0.5 0 0.4 0.7 1.1 1.6 16 Broad-based reform: Combined package Capital stock 1.3 1.1 2.3 3.3 4.2 5.8 16 Broad-based reform: Combined package Hours worked 0.1 -0.6 -0.6 -0.5 -0.4 -0.3 16 Broad-based reform: Combined package Average wage 0.3 0.6 1 1.2 1.5 2 16 Broad-based reform: Combined package Debt-to-GDP ratio, baseline 119 127 141 161 183 210 16 Broad-based reform: Combined package Debt-to-GDP ratio, policy option 116 114 117 123 133 145 17 Broad-based reform: Enact a 1 percent value added tax (VAT) Gross domestic product 0 0.1 0.1 0.2 0.3 0.4 17 Broad-based reform: Enact a 1 percent value added tax (VAT) Capital stock 0.1 0.3 0.5 0.7 0.9 1.2 17 Broad-based reform: Enact a 1 percent value added tax (VAT) Hours worked 0 0 0 0 0 0 17 Broad-based reform: Enact a 1 percent value added tax (VAT) Average wage 0 0.1 0.2 0.2 0.3 0.4 17 Broad-based reform: Enact a 1 percent value added tax (VAT) Debt-to-GDP ratio, baseline 119 127 141 161 183 210 17 Broad-based reform: Enact a 1 percent value added tax (VAT) Debt-to-GDP ratio, policy option 118 124 137 155 176 200 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards Gross domestic product 0 0 0 0.1 0.2 0.3 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards Capital stock 0 0.1 0.5 0.6 0.8 1 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards Hours worked 0 -0.1 -0.2 -0.1 -0.1 -0.1 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards Average wage 0 0 0.2 0.2 0.3 0.4 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards Debt-to-GDP ratio, baseline 119 127 141 161 183 210 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards Debt-to-GDP ratio, policy option 119 126 138 155 175 198 19 Broad-based reform: Disallow all itemized deductions Gross domestic product 0.4 -0.2 0 0.2 0.3 0.7 19 Broad-based reform: Disallow all itemized deductions Capital stock 1 0.4 0.8 1.2 1.5 2.4 19 Broad-based reform: Disallow all itemized deductions Hours worked 0.2 -0.5 -0.4 -0.3 -0.3 -0.2 19 Broad-based reform: Disallow all itemized deductions Average wage 0.2 0.3 0.4 0.5 0.6 0.9 19 Broad-based reform: Disallow all itemized deductions Debt-to-GDP ratio, baseline 119 127 141 161 183 210 19 Broad-based reform: Disallow all itemized deductions Debt-to-GDP ratio, policy option 118 121 129 142 158 177 20 Broad-based reform: Cut annual discretionary spending by 5 percent Gross domestic product 0 0.1 0.1 0.2 0.3 0.3 20 Broad-based reform: Cut annual discretionary spending by 5 percent Capital stock 0.1 0.3 0.4 0.6 0.8 1 20 Broad-based reform: Cut annual discretionary spending by 5 percent Hours worked 0 0 0 0 0 0 20 Broad-based reform: Cut annual discretionary spending by 5 percent Average wage 0 0.1 0.1 0.2 0.2 0.3 20 Broad-based reform: Cut annual discretionary spending by 5 percent Debt-to-GDP ratio, baseline 119 127 141 161 183 210 20 Broad-based reform: Cut annual discretionary spending by 5 percent Debt-to-GDP ratio, policy option 118 125 138 156 177 201 21 Broad-based reform: Cut annual infrastructure investment by 10 percent Gross domestic product 0 0 0 0 0 0 21 Broad-based reform: Cut annual infrastructure investment by 10 percent Capital stock 0 0.1 0.2 0.2 0.3 0.3 21 Broad-based reform: Cut annual infrastructure investment by 10 percent Hours worked 0 0 0 0 0 0 21 Broad-based reform: Cut annual infrastructure investment by 10 percent Average wage 0 0 0 0 0 0 21 Broad-based reform: Cut annual infrastructure investment by 10 percent Debt-to-GDP ratio, baseline 119 127 141 161 183 210 21 Broad-based reform: Cut annual infrastructure investment by 10 percent Debt-to-GDP ratio, policy option 119 126 140 159 181 207
ScenarioID ScenarioDescription Age Group Bottom Quintile Second Quintile Middle Quintile Fourth Quintile Top Quintile 1 Taxes on the wealthy: Combined package -15 19900 40000 79700 130200 159200 1 Taxes on the wealthy: Combined package -10 17100 36600 72800 118000 137700 1 Taxes on the wealthy: Combined package -5 14100 31300 61700 102900 110100 1 Taxes on the wealthy: Combined package 0 12300 26700 51300 80900 86800 1 Taxes on the wealthy: Combined package 5 10300 22100 42100 43000 69600 1 Taxes on the wealthy: Combined package 10 8400 17800 34700 51600 54600 1 Taxes on the wealthy: Combined package 15 6800 14400 28900 33800 42200 1 Taxes on the wealthy: Combined package 20 4500 8600 19700 22500 24800 1 Taxes on the wealthy: Combined package 25 5600 10200 10500 22300 23200 1 Taxes on the wealthy: Combined package 30 3600 6400 13300 21400 1600 1 Taxes on the wealthy: Combined package 35 2600 5500 6000 11700 900 1 Taxes on the wealthy: Combined package 40 1500 2600 3700 7700 -15400 1 Taxes on the wealthy: Combined package 50 -400 -3200 -2000 -2900 -46500 1 Taxes on the wealthy: Combined package 55 -2900 -4800 -8900 -7900 -55900 1 Taxes on the wealthy: Combined package 60 -8500 -8400 -34600 -24000 -63900 1 Taxes on the wealthy: Combined package 65 -9200 -9800 -23000 -44100 -65800 1 Taxes on the wealthy: Combined package 70 -3600 -9900 -42700 -1287800 -5728700 1 Taxes on the wealthy: Combined package 75 -2300 -9600 -45800 -1113000 -4881500 1 Taxes on the wealthy: Combined package 80 -1500 -7200 -44100 -918500 -3949200 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent -15 5200 9000 20800 38400 50800 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent -10 4900 8700 20000 36700 45800 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent -5 4000 7800 17900 33400 37900 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent 0 3900 7100 15900 28900 29900 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent 5 3400 6300 13700 14800 25600 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent 10 3100 5700 11700 21500 21700 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent 15 2700 5300 10600 15500 19200 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent 20 1900 3900 7500 11300 12800 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent 25 2600 6500 4800 10200 14400 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent 30 1900 3200 6500 11300 10300 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent 35 1600 3200 5000 6700 8800 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent 40 1500 2800 3100 5600 5900 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent 45 1600 1200 2000 3800 2700 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent 50 1700 300 1300 1700 -700 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent 55 1000 -500 -800 0 -3500 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent 60 -2200 -2200 -8500 -4700 -8500 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent 65 -2300 -2200 -5200 -9700 -10800 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent 70 -1100 -3000 -10300 -105500 -414300 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent 75 -700 -2900 -12300 -115800 -426500 2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percent 80 -500 -2300 -12900 -119900 -432600 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death -15 800 1700 3200 5200 6000 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death -10 600 1300 2600 3800 2400 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death -5 300 900 1700 2100 -300 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death 0 200 500 900 -1000 -200 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death 5 100 200 200 -400 -1700 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death 10 0 0 -200 -3300 -2900 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death 15 0 -200 -600 -3400 -4200 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death 20 -100 -300 -1000 -3900 -5300 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death 25 -300 -2500 -600 -1600 -6900 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death 30 -500 -500 -1200 -2900 -10900 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death 35 -500 -800 -2600 -1800 -7600 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death 40 -500 -1300 -1200 -2100 -9100 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death 45 -500 -1500 -1200 -2300 -10200 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death 50 -700 -1500 -1400 -2500 -10500 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death 55 -800 -1200 -2000 -2200 -10000 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death 60 -1100 -1000 -4700 -2700 -8600 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death 65 -1300 -1200 -2600 -5100 -6400 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death 70 -500 -1300 -5000 -53600 -210800 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death 75 -300 -1000 -4400 -44500 -176900 3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at death 80 -200 -600 -3300 -33200 -135300 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income -15 900 1800 3600 7300 15000 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income -10 800 1600 3300 6700 12900 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income -5 300 1200 2700 5700 9800 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income 0 400 1000 2200 4400 5000 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income 5 300 700 1600 1700 3600 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income 10 200 500 1100 2100 2400 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income 15 100 300 600 800 1300 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income 20 100 100 200 200 400 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income 25 0 200 0 100 200 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income 30 -100 -100 -100 -100 100 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income 35 0 0 100 0 0 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income 40 0 0 -100 -200 -100 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income 45 -500 -200 -500 -400 -100 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income 50 -100 -200 -200 -400 -300 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income 55 -100 -300 -200 -500 -400 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income 60 -200 -400 -300 -500 -500 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income 65 -300 -300 -400 -300 -300 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income 70 -200 -400 -400 1400 700 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income 75 -200 -300 -400 -600 -2500 4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through income 80 -100 -300 -400 -1200 -4300 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million -15 800 1600 3200 6500 12000 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million -10 700 1500 3000 6000 10400 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million -5 500 1300 2600 5300 8100 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million 0 400 1000 2200 4300 4700 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million 5 300 900 1900 2000 3800 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million 10 300 700 1500 2700 3000 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million 15 200 500 1200 1700 2400 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million 20 200 400 900 1300 1700 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million 25 200 700 500 1200 1900 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million 30 200 300 700 1400 1400 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million 35 100 300 600 800 900 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million 40 100 300 300 700 200 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million 45 100 300 200 500 -500 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million 50 100 200 100 300 -1300 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million 55 100 100 0 0 -1800 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million 60 0 -100 -200 -600 -1900 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million 65 0 -200 -400 -1000 -2200 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million 70 0 0 -500 -94000 -392300 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million 75 0 100 -500 -83300 -349500 5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 million 80 0 0 -500 -66000 -283000 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million -15 -800 -1600 -3200 -8700 -36400 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million -10 -900 -1800 -3600 -9700 -22300 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million -5 -1000 -1900 -3700 -10400 -33500 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million 0 -1000 -1900 -3800 -10300 -14200 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million 5 -900 -1800 -3700 -3800 -14500 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million 10 -700 -1600 -3400 -9500 -14400 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million 15 -600 -1400 -3300 -5500 -14500 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million 20 -600 -1400 -3100 -4800 -14200 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million 25 -1200 -2100 -2000 -3900 -13400 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million 30 -1100 -1800 -3100 -4600 -20400 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million 35 -1300 -2200 -2700 -3600 -13800 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million 40 -1000 -2000 -1900 -2800 -18000 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million 45 -400 -1300 -1400 -2200 -22600 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million 50 -1200 -1100 -2200 -2100 -25500 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million 55 0 -800 -1800 -2700 -25900 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million 60 -600 -1200 -2900 -6800 -22900 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million 65 -200 -1900 -3900 -8600 -22000 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million 70 0 400 -4700 -857700 -3935600 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million 75 0 300 -4600 -703300 -3198400 6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 million 80 0 100 -4000 -526200 -2384900 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent -15 12000 25900 51000 100300 160000 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent -10 11100 24400 48300 94200 147400 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent -5 9600 21300 42900 85700 122300 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent 0 8600 18500 38100 73100 80600 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent 5 7300 15500 32900 34600 69700 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent 10 6200 12800 28200 52300 60100 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent 15 5400 10600 24200 32700 51500 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent 20 3800 7200 17600 23900 38600 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent 25 4900 10100 8600 19300 33100 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent 30 3400 5600 11400 19100 27400 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent 35 3000 5400 7100 11000 16900 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent 40 2500 4100 4600 8300 9100 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent 45 2100 1100 2700 4500 1100 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent 50 1500 -600 900 600 -6600 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent 55 800 -1900 -3100 -2600 -13200 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent 60 -4300 -4200 -17700 -9900 -20700 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent 65 -4900 -4400 -10600 -19900 -23400 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent 70 -2000 -5800 -21400 -214900 -800000 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent 75 -1200 -5500 -23800 -216100 -784700 7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percent 80 -800 -4100 -23600 -212400 -763200 8 Entitlement reform: Combined package -15 58600 110300 176000 254500 350400 8 Entitlement reform: Combined package -10 48300 92100 145800 210700 288000 8 Entitlement reform: Combined package -5 35600 69400 113500 157700 201200 8 Entitlement reform: Combined package 0 27800 49200 83400 124400 114400 8 Entitlement reform: Combined package 5 20600 35500 54100 64100 69100 8 Entitlement reform: Combined package 10 14600 24400 33600 48300 30200 8 Entitlement reform: Combined package 15 10300 15100 16800 39500 0 8 Entitlement reform: Combined package 20 6500 7600 4000 25200 -19500 8 Entitlement reform: Combined package 25 10700 40700 12900 11500 -23300 8 Entitlement reform: Combined package 30 11000 9600 11700 2000 -38200 8 Entitlement reform: Combined package 35 9600 7900 23200 5100 -23600 8 Entitlement reform: Combined package 40 6400 6800 6900 -2600 -28900 8 Entitlement reform: Combined package 45 2900 3400 3400 -5100 -22800 8 Entitlement reform: Combined package 50 -1300 -9100 -300 -9900 -20300 8 Entitlement reform: Combined package 55 -4700 -10200 -3000 -8400 -8600 8 Entitlement reform: Combined package 60 -2800 -5400 1500 -3600 -4200 8 Entitlement reform: Combined package 65 -4000 -4700 -5500 700 2800 8 Entitlement reform: Combined package 70 -2900 -5300 -1400 143500 580100 8 Entitlement reform: Combined package 75 -2500 -4100 -1000 83400 355300 8 Entitlement reform: Combined package 80 -1300 -2500 -1100 36500 175500 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI -15 1900 3500 6800 15200 28400 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI -10 1700 3200 6400 14200 25600 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI -5 1100 2700 5600 12500 20600 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI 0 1200 2400 5000 10300 11800 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI 5 1000 2100 4200 4500 9800 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI 10 800 1800 3600 7000 8300 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI 15 700 1500 3100 4400 7000 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI 20 500 1100 2500 3400 5600 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI 25 700 1800 1400 3100 6000 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI 30 400 800 1700 3200 5600 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI 35 200 400 1200 1100 2600 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI 40 0 0 0 -300 -100 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI 45 -1100 -1200 -1700 -2700 -3400 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI 50 -2000 -3500 -3400 -5400 -6900 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI 55 -4100 -6200 -5900 -8200 -10200 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI 60 -5700 -8100 -10000 -11000 -13300 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI 65 -5600 -6400 -9100 -8300 -9800 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI 70 -3100 -5900 -7900 -9400 -13800 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI 75 -2600 -4500 -5300 -6600 -9600 9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPI 80 -1400 -2600 -3000 -3700 -5000 10 Entitlement reform: Make the Social Security benefit formula more progressive -15 2700 3800 6000 11800 24000 10 Entitlement reform: Make the Social Security benefit formula more progressive -10 2200 3000 4600 8700 17700 10 Entitlement reform: Make the Social Security benefit formula more progressive -5 1200 2000 2900 4600 9000 10 Entitlement reform: Make the Social Security benefit formula more progressive 0 1000 1100 1100 6300 900 10 Entitlement reform: Make the Social Security benefit formula more progressive 5 500 300 -500 1400 -2600 10 Entitlement reform: Make the Social Security benefit formula more progressive 10 200 -300 -1800 0 -6000 10 Entitlement reform: Make the Social Security benefit formula more progressive 15 0 -900 -3200 1100 -9100 10 Entitlement reform: Make the Social Security benefit formula more progressive 20 -300 -1400 -4400 -300 -11600 10 Entitlement reform: Make the Social Security benefit formula more progressive 25 -400 2800 -2200 -7600 -19600 10 Entitlement reform: Make the Social Security benefit formula more progressive 30 0 -1700 -5800 -15300 -27900 10 Entitlement reform: Make the Social Security benefit formula more progressive 35 -300 -2700 -3300 -9800 -25600 10 Entitlement reform: Make the Social Security benefit formula more progressive 40 -400 -3400 -3000 -11000 -26600 10 Entitlement reform: Make the Social Security benefit formula more progressive 45 -1100 -4500 -3700 -11400 -24900 10 Entitlement reform: Make the Social Security benefit formula more progressive 50 -1000 -5300 -3000 -8900 -18800 10 Entitlement reform: Make the Social Security benefit formula more progressive 55 -900 -3000 -2300 -4700 -10400 10 Entitlement reform: Make the Social Security benefit formula more progressive 60 100 300 -400 100 -1200 10 Entitlement reform: Make the Social Security benefit formula more progressive 65 -200 -100 -400 -900 -1200 10 Entitlement reform: Make the Social Security benefit formula more progressive 70 0 -200 -800 -9300 -29700 10 Entitlement reform: Make the Social Security benefit formula more progressive 75 0 -100 -600 -6500 -21100 10 Entitlement reform: Make the Social Security benefit formula more progressive 80 0 0 -300 -3800 -12700 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 -15 21200 39700 79600 145300 236400 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 -10 17800 35200 70300 130400 210600 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 -5 13800 28400 56600 110400 164100 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 0 11400 22800 44800 102000 97600 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 5 8900 17300 35300 43600 79000 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 10 7000 12800 27700 68400 62700 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 15 5600 9400 21500 50300 50400 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 20 4100 7000 15300 43200 39400 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 25 6300 30300 8900 16500 33900 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 30 6800 6100 10100 14700 36800 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 35 6600 6400 19500 8700 19300 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 40 4800 6600 7000 4500 15700 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 45 3100 5200 5800 5600 23100 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 50 1200 -3400 4100 2100 21100 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 55 -900 -2500 3000 3800 25700 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 60 2200 2300 8400 5800 16100 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 65 1100 1200 2300 6200 8000 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 70 100 400 4100 74700 250900 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 75 0 100 2300 35200 112300 11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70 80 0 0 600 5200 9100 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent -15 1400 2400 5200 14300 35300 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent -10 900 1600 3700 11100 29400 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent -5 100 600 2000 7400 19500 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent 0 0 -100 400 3800 5400 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent 5 -200 -700 -1000 -1000 1600 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent 10 -500 -1300 -2300 -2400 -1500 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent 15 -700 -1900 -3500 -4900 -4300 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent 20 -800 -2000 -3700 -5300 -5200 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent 25 -1300 -3800 -2800 -6100 -7800 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent 30 -1000 -2100 -4500 -7800 -5600 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent 35 -900 -2200 -3800 -5100 -6000 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent 40 -900 -2200 -2500 -4700 -4800 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent 45 -1200 -1600 -2500 -4100 -3400 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent 50 -800 -1300 -1800 -3100 -2200 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent 55 -300 -900 -900 -2000 -1000 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent 60 100 -400 700 -500 400 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent 65 500 500 1100 2400 2900 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent 70 100 400 2100 35200 130700 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent 75 100 300 1800 25700 97900 12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percent 80 100 200 1200 16500 66200 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold -15 4800 5900 3900 -15400 -74200 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold -10 4100 4800 1500 -21000 -49700 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold -5 3200 3400 -1000 -27300 -80200 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold 0 2400 2200 -3100 -32500 -40200 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold 5 1800 1100 -5000 -7200 -45000 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold 10 1300 400 -6500 -37400 -49000 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold 15 900 -200 -8100 -21200 -54600 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold 20 500 -800 -9600 -21100 -55500 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold 25 1300 3700 1100 -4700 -54000 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold 30 1200 1600 1500 -7400 -63800 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold 35 1200 1800 3200 1300 -27300 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold 40 1100 2200 1900 1200 -24200 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold 45 1100 2400 2000 1500 -20000 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold 50 1100 1900 2000 1500 -15000 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold 55 1000 1200 2300 1200 -9500 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold 60 800 600 4000 2200 -3600 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold 65 600 700 1400 4200 5600 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold 70 0 300 3000 70500 250200 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold 75 0 100 1600 35300 127000 13 Entitlement reform: Double the Social Security taxable maximum earnings threshold 80 0 0 100 7100 25500 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 -15 NA NA NA NA NA 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 -10 NA NA NA NA NA 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 -5 NA NA NA NA NA 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 0 NA NA NA NA NA 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 5 NA NA NA NA NA 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 10 NA NA NA NA NA 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 15 NA NA NA NA NA 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 20 NA NA NA NA NA 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 25 NA NA NA NA NA 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 30 NA NA NA NA NA 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 35 NA NA NA NA NA 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 40 NA NA NA NA NA 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 45 NA NA NA NA NA 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 50 NA NA NA NA NA 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 55 NA NA NA NA NA 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 60 NA NA NA NA NA 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 65 NA NA NA NA NA 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 70 NA NA NA NA NA 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 75 NA NA NA NA NA 14 Entitlement reform: Raise the Medicare retirement age from 65 to 67 80 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices -15 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices -10 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices -5 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices 0 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices 5 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices 10 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices 15 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices 20 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices 25 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices 30 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices 35 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices 40 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices 45 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices 50 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices 55 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices 60 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices 65 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices 70 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices 75 NA NA NA NA NA 15 Entitlement reform: Allow Medicare to negotiate drug prices 80 NA NA NA NA NA 16 Broad-based reform: Combined package -15 15700 31200 62700 117600 157900 16 Broad-based reform: Combined package -10 12100 24600 49400 96800 128400 16 Broad-based reform: Combined package -5 8100 16100 35000 71600 89200 16 Broad-based reform: Combined package 0 5300 8800 22300 46500 47800 16 Broad-based reform: Combined package 5 2700 4200 9500 11600 24700 16 Broad-based reform: Combined package 10 500 400 1400 5900 4400 16 Broad-based reform: Combined package 15 -400 -1800 -3600 -4000 -8200 16 Broad-based reform: Combined package 20 -800 -2300 -4500 -5800 -11800 16 Broad-based reform: Combined package 25 -1500 -3500 -3900 -8800 -14000 16 Broad-based reform: Combined package 30 -1200 -3300 -7800 -13100 -14500 16 Broad-based reform: Combined package 35 -1500 -4400 -6000 -10600 -14100 16 Broad-based reform: Combined package 40 -1800 -4700 -5500 -11300 -14700 16 Broad-based reform: Combined package 45 -3000 -4700 -6600 -11900 -14800 16 Broad-based reform: Combined package 50 -3300 -6200 -6900 -11800 -15800 16 Broad-based reform: Combined package 55 -4200 -7200 -7100 -11200 -15700 16 Broad-based reform: Combined package 60 -4800 -6800 -9600 -10000 -14200 16 Broad-based reform: Combined package 65 -5900 -6200 -9900 -8600 -10700 16 Broad-based reform: Combined package 70 -3400 -7000 -10300 -15000 -45800 16 Broad-based reform: Combined package 75 -3200 -6300 -8300 -17700 -54300 16 Broad-based reform: Combined package 80 -2000 -4400 -6200 -17200 -53800 17 Broad-based reform: Enact a 1 percent value added tax (VAT) -15 2000 3700 7300 16600 30800 17 Broad-based reform: Enact a 1 percent value added tax (VAT) -10 1600 3100 6300 14300 25800 17 Broad-based reform: Enact a 1 percent value added tax (VAT) -5 700 2300 4900 10900 18200 17 Broad-based reform: Enact a 1 percent value added tax (VAT) 0 600 1600 3600 7200 8300 17 Broad-based reform: Enact a 1 percent value added tax (VAT) 5 300 900 2200 2300 5200 17 Broad-based reform: Enact a 1 percent value added tax (VAT) 10 100 400 1000 1800 2400 17 Broad-based reform: Enact a 1 percent value added tax (VAT) 15 -100 -100 -100 -500 -300 17 Broad-based reform: Enact a 1 percent value added tax (VAT) 20 -200 -400 -800 -1500 -2100 17 Broad-based reform: Enact a 1 percent value added tax (VAT) 25 -500 -1100 -900 -1700 -3500 17 Broad-based reform: Enact a 1 percent value added tax (VAT) 30 -600 -1000 -1800 -3000 -5400 17 Broad-based reform: Enact a 1 percent value added tax (VAT) 35 -800 -1400 -2100 -2600 -4900 17 Broad-based reform: Enact a 1 percent value added tax (VAT) 40 -800 -1600 -1700 -3000 -5900 17 Broad-based reform: Enact a 1 percent value added tax (VAT) 45 -1400 -2000 -2300 -3600 -6700 17 Broad-based reform: Enact a 1 percent value added tax (VAT) 50 -1500 -2400 -2400 -3800 -7100 17 Broad-based reform: Enact a 1 percent value added tax (VAT) 55 -1600 -2600 -2800 -3800 -7000 17 Broad-based reform: Enact a 1 percent value added tax (VAT) 60 -2000 -2400 -4500 -3800 -6500 17 Broad-based reform: Enact a 1 percent value added tax (VAT) 65 -2100 -2200 -3700 -4000 -5000 17 Broad-based reform: Enact a 1 percent value added tax (VAT) 70 -1300 -2500 -4300 -12300 -33700 17 Broad-based reform: Enact a 1 percent value added tax (VAT) 75 -1100 -2200 -3600 -9700 -26600 17 Broad-based reform: Enact a 1 percent value added tax (VAT) 80 -700 -1600 -2700 -7000 -19000 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards -15 1600 2500 4500 8800 17800 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards -10 1000 1700 3200 6300 12100 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards -5 200 700 1500 3000 5000 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards 0 100 100 0 -300 -400 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards 5 -100 -600 -1400 -1600 -3900 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards 10 -400 -1100 -2500 -5500 -6600 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards 15 -400 -1200 -2800 -4300 -7100 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards 20 -400 -1100 -2500 -3300 -5500 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards 25 -700 -1600 -1600 -3500 -6400 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards 30 -600 -1200 -2600 -4600 -5300 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards 35 -700 -1500 -1900 -3200 -4400 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards 40 -500 -1300 -1500 -3000 -3800 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards 45 -1000 -1300 -1800 -2900 -3200 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards 50 -800 -1500 -1600 -2600 -3000 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards 55 -800 -1600 -1400 -2400 -2700 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards 60 -1000 -1500 -1900 -2100 -2500 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards 65 -1200 -1400 -2100 -1900 -2300 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards 70 -700 -1500 -2200 -6100 -19900 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards 75 -700 -1200 -1800 -6600 -21900 18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standards 80 -400 -800 -1300 -6000 -20500 19 Broad-based reform: Disallow all itemized deductions -15 5900 9700 23100 47400 56600 19 Broad-based reform: Disallow all itemized deductions -10 4500 7300 17900 38200 43600 19 Broad-based reform: Disallow all itemized deductions -5 2500 4700 11000 26600 28100 19 Broad-based reform: Disallow all itemized deductions 0 1500 2500 5900 16700 15100 19 Broad-based reform: Disallow all itemized deductions 5 400 300 1400 2500 4600 19 Broad-based reform: Disallow all itemized deductions 10 -200 -1300 -2300 -1300 -4300 19 Broad-based reform: Disallow all itemized deductions 15 -700 -2500 -5200 -6000 -11700 19 Broad-based reform: Disallow all itemized deductions 20 -900 -2500 -4900 -6200 -12900 19 Broad-based reform: Disallow all itemized deductions 25 -1400 -3400 -3800 -8600 -14500 19 Broad-based reform: Disallow all itemized deductions 30 -1000 -2900 -6900 -11700 -13700 19 Broad-based reform: Disallow all itemized deductions 35 -1200 -3600 -4800 -8700 -11500 19 Broad-based reform: Disallow all itemized deductions 40 -1200 -3300 -3900 -8600 -10500 19 Broad-based reform: Disallow all itemized deductions 45 -1700 -2900 -4300 -8200 -9100 19 Broad-based reform: Disallow all itemized deductions 50 -1600 -3300 -3900 -7100 -8200 19 Broad-based reform: Disallow all itemized deductions 55 -2200 -3700 -3500 -6100 -7100 19 Broad-based reform: Disallow all itemized deductions 60 -1900 -3100 -3600 -4400 -5500 19 Broad-based reform: Disallow all itemized deductions 65 -2600 -2700 -4300 -2900 -3400 19 Broad-based reform: Disallow all itemized deductions 70 -1400 -3100 -4100 7400 18600 19 Broad-based reform: Disallow all itemized deductions 75 -1400 -2900 -3400 -4100 -13000 19 Broad-based reform: Disallow all itemized deductions 80 -900 -2100 -2700 -7000 -23000 20 Broad-based reform: Cut annual discretionary spending by 5 percent -15 3500 6100 13000 27800 48900 20 Broad-based reform: Cut annual discretionary spending by 5 percent -10 3200 5700 12100 26100 44300 20 Broad-based reform: Cut annual discretionary spending by 5 percent -5 2400 4900 10200 23200 35700 20 Broad-based reform: Cut annual discretionary spending by 5 percent 0 2300 4300 8600 19300 21500 20 Broad-based reform: Cut annual discretionary spending by 5 percent 5 1900 3700 7400 8000 18100 20 Broad-based reform: Cut annual discretionary spending by 5 percent 10 1600 3100 6200 12800 15100 20 Broad-based reform: Cut annual discretionary spending by 5 percent 15 1300 2700 5300 7800 12500 20 Broad-based reform: Cut annual discretionary spending by 5 percent 20 900 2000 4200 5900 9500 20 Broad-based reform: Cut annual discretionary spending by 5 percent 25 1300 3300 2500 5300 10200 20 Broad-based reform: Cut annual discretionary spending by 5 percent 30 900 1600 3300 6000 10600 20 Broad-based reform: Cut annual discretionary spending by 5 percent 35 700 1600 2900 3600 7500 20 Broad-based reform: Cut annual discretionary spending by 5 percent 40 900 1900 1800 3300 6800 20 Broad-based reform: Cut annual discretionary spending by 5 percent 45 300 1500 1200 2700 5900 20 Broad-based reform: Cut annual discretionary spending by 5 percent 50 700 1300 1300 2100 4500 20 Broad-based reform: Cut annual discretionary spending by 5 percent 55 500 900 900 1200 3100 20 Broad-based reform: Cut annual discretionary spending by 5 percent 60 300 400 1100 800 1700 20 Broad-based reform: Cut annual discretionary spending by 5 percent 65 200 200 300 800 900 20 Broad-based reform: Cut annual discretionary spending by 5 percent 70 0 100 700 10700 38200 20 Broad-based reform: Cut annual discretionary spending by 5 percent 75 0 100 800 10700 38500 20 Broad-based reform: Cut annual discretionary spending by 5 percent 80 0 100 600 9300 35900 21 Broad-based reform: Cut annual infrastructure investment by 10 percent -15 500 1100 2300 4600 9100 21 Broad-based reform: Cut annual infrastructure investment by 10 percent -10 400 1000 2100 4300 7800 21 Broad-based reform: Cut annual infrastructure investment by 10 percent -5 300 800 1800 3700 6200 21 Broad-based reform: Cut annual infrastructure investment by 10 percent 0 300 700 1500 3000 3400 21 Broad-based reform: Cut annual infrastructure investment by 10 percent 5 200 600 1300 1300 2900 21 Broad-based reform: Cut annual infrastructure investment by 10 percent 10 200 500 1000 1900 2400 21 Broad-based reform: Cut annual infrastructure investment by 10 percent 15 200 400 900 1200 2000 21 Broad-based reform: Cut annual infrastructure investment by 10 percent 20 100 300 700 900 1500 21 Broad-based reform: Cut annual infrastructure investment by 10 percent 25 200 500 400 900 1700 21 Broad-based reform: Cut annual infrastructure investment by 10 percent 30 100 300 600 1000 1700 21 Broad-based reform: Cut annual infrastructure investment by 10 percent 35 100 300 500 600 1200 21 Broad-based reform: Cut annual infrastructure investment by 10 percent 40 100 300 300 600 1000 21 Broad-based reform: Cut annual infrastructure investment by 10 percent 45 100 300 300 500 800 21 Broad-based reform: Cut annual infrastructure investment by 10 percent 50 100 300 200 400 600 21 Broad-based reform: Cut annual infrastructure investment by 10 percent 55 100 200 100 200 300 21 Broad-based reform: Cut annual infrastructure investment by 10 percent 60 0 100 100 100 100 21 Broad-based reform: Cut annual infrastructure investment by 10 percent 65 0 0 0 0 0 21 Broad-based reform: Cut annual infrastructure investment by 10 percent 70 0 0 100 100 -100 21 Broad-based reform: Cut annual infrastructure investment by 10 percent 75 0 0 100 1300 4300 21 Broad-based reform: Cut annual infrastructure investment by 10 percent 80 0 0 200 2000 7700
ScenarioID ScenarioDescription Current Law Proposal Results 1 Taxes on the wealthy: Combined packageThis reform package combines all the policy options under the "taxes on the wealthy” theme, accounting for interaction effects.
The combination of these policies substantially reduces projected future deficits: the debt-to-GDP ratio falls by 32 percentage points in 2040 and 42 percentage points in 2050. Lower structural deficits reduce capital crowd-out in the private sector. This effect, combined with the larger implicit subsidy for capital investment under the policy which maintains partial investment expensing and net interest deductions, leads to a larger long-run economy. These effects dominate the negative growth effects from higher taxes on labor income on domestic saving. The capital stock, hours worked, and wages are all larger relative to baseline, the result of which is an increase in GDP of 2.4 percent in 2050.
Because of the substantial positive long-run growth effects, younger households benefit most from the policy package. This remains true for even the richest group of households, where those aged 35 and younger benefit on net. Retirees, who tend to be wealthier and rely on capital income for consumption, are made worse off by the package.
2 Taxes on the wealthy: Raise the top rate on ordinary income from 37 percent to 45 percentUnder current law, the top statutory marginal rate is 37 percent for taxable income above $518,400 ($622,050 for married filers). This rate applies to “ordinary” taxable income, which covers most types of income including wage earnings, self-employment income, interest income, and more. This rate is scheduled to rise to 39.6 percent starting in 2026.
Under the policy option, the top statutory rate would rise to 45 percent starting in 2022, representing an increase relative to current law of 7 percentage points for 2022 to 2025 and 5.4 percentage points thereafter.
On the one hand, a higher top rate on ordinary income discourages labor supply and savings by high-income households who are more productive and have a higher savings rate, which leads to a lower capital stock. On the other hand, the revenue raised from higher taxes helps reduce government debt as a share of output, which falls by 7 percentage points in 2040 and 10 percentage points in 2050. This decrease in the debt ratio crowds in private capital investment, which is 2.2 percent higher in 2040 and 2.7 percent higher in 2050. Wages end up 0.6 percent higher in 2040 and 0.8 percent higher in 2050 due to the increased marginal productivity of labor. GDP is 0.6 percent higher in 2040 and 0.8 percent higher in 2050 as the crowding in effect of lower government debt outweighs the lower level of savings and investment by high-income households.
Households who gain the most from this policy are young and have not joined the workforce and thus are able to enjoy the benefits of higher wages for a longer period of time. Among those, more productive households benefit even more due to their larger labor income in the future. In contrast, older cohorts, especially those who have retired, do not benefit as much from higher wages. Furthermore, they have more savings which would be taxed at a higher rate. As a result, older and wealthier households dislike this policy the most.
3 Taxes on the wealthy: Tax capital gains and dividends at ordinary rates and tax unrealized gains at deathUnder current law, capital gains and dividends may receive preferential tax treatment if certain requirements are met. Generally, realized gains on appreciated property held for more than one year (“long term capital gains”) and dividends on stock held for several months (“qualified dividends”) are eligible for taxation under lower rates. These rates are structured as a series of progressive tax brackets and currently range from 0 to 20 percent depending on the filer’s other taxable income. In addition, a 3.8 percent tax on net investment income also applies for filers making more than $200,000 in gross income ($250,000 for married filers), bringing the combined top rate to 23.8 percent. Proceeds from property held in tax-sheltered investment vehicles such as 401(k)s and IRAs are generally not subject to these taxes.
When an individual transfers appreciated property through death or charitable bequest, the asset’s basis is “stepped-up” to its market value at the time of death, eliminating any taxable gain.
Under the policy option, all capital gains and dividends currently taxed under preferential rates would face the ordinary rate schedule, with marginal rates ranging from 10 percent to 37 percent. Assets held in tax-preferred accounts would retain their current-law treatment.
Transfer of appreciated property at death would be treated as a realization event, taxable on the decedent’s final individual income tax return. The proposal would allow for a $1 million exemption in addition to the current-law exemption of $250,000 ($500,000 for married filers) for gains on primary residences. Tax from unrealized capital gains on illiquid assets (for example, a closely-held private business) would be eligible to be paid in interest-free installments over 15 years. Qualifying charitable organizations would continue to receive a step-up in basis when receiving non-cash charitable contributions.
Higher taxes on capital gains and dividends currently facing preferential rates and on unrealized gains at death would lower the after-tax return on equity investment, and therefore, disincentivize savings and result in a lower capital stock. Compared with taxes on business income, domestic shareholder taxes generally have smaller negative effect on domestic investment, as foreign investors partially offset the reduction in saving from domestic investors. However, the increase in tax revenue lowers the debt-to-GDP ratio by 4 percentage points in 2040 and 6 percentage points in 2050, which in turn crowds in private capital investment. We find that these two effects roughly offset each other and there is no discernable net change in the any of the capital stock, wages, or GDP in 2040 and 2050.
Older and wealthier households lose the most from this policy since they have more savings and equity investment and therefore more capital gains and dividends which would be taxed at a higher rate. The oldest cohorts, however, have been drawing down their savings after retirement to support their consumption for a longer period of time, and consequently, lose less from the policy compared to their slightly younger counterparts.
4 Taxes on the wealthy: Expand the base of employment taxes to cover all pass-through incomeUnder current law, most income above $200,000 ($250,000 for married filers) faces a 3.8 percent tax either through Medicare employment taxes, which are designed to tax labor income, or the Net Investment Income tax (NIIT), which is designed to tax capital income. However, tax planning allows for some income earned through pass-through business to pay neither employment taxes under the Self Employment Contributions Act (SECA) nor the NIIT. This gap in the tax base is driven by legal classification of ownership and participation in business activities.
Under the policy option, all pass-through income would be subject to either SECA tax or the NIIT. Specifically, active owners of S corporations would no longer be required to pay themselves reasonable compensation; instead, active income earned through an S corporation would face SECA tax.
A broadened tax base that makes all pass-through income subject to employment taxes leads to lower savings and investment since households have less after-tax income and thus less to invest. This would decrease the capital stock in the economy. However, since the additional tax revenue lowers government debt as a share of GDP, which declines by 3 percentage points in 2040 and 5 percentage points in 2050, it also crowds in private capital investment. On net, the capital stock ends up 0.3 percent higher in 2040 and 0.4 percent higher in 2050.As a result, wages are 0.1 percent higher in 2040 and 0.2 percent higher in 2050, as more capital increases the marginal productivity of labor. GDP is 0.1 percent higher in 2040 and 2050.
People who are young, especially those who have not entered the workforce, benefit the most from this policy as they are able to reap the full benefits of higher wages. The more productive groups of these younger cohorts benefit even more, given their larger labor income in the future. Older households are excluded from most of the gains from future higher wages and also tend to have more pass-through income which would be subject to SECA tax or the NIIT. As a result, older households tend to lose from this policy the most as they experience the biggest decline in their after-tax income.
5 Taxes on the wealthy: Lower the estate tax exemption from $11.7 million to $3.5 millionUnder current law, non-market transfers of wealth are taxed under the estate and gift tax system. Generally, transfers at death are taxable at the estate level and are allowed a per-person exemption of $11.7 million, above which a rate of 40 percent applies. Starting in 2026, the exemption value is scheduled to be reduced to $6.5 million. Bequests to a surviving spouse and to charity are exempt from the taxable estate and other deductions and exemptions apply. The estate tax targets a small fraction of the population: of the 2.9 million Americans died in 2019, only 2,500 owed any estate tax liability.
Under the policy option, the estate tax exemption would be lowered to $3.5 million. This threshold represents a return to 2009 estate tax law in nominal terms.
Expanding the estate tax by lowering the exemption to $3.5 million would discourage savings of high-income households, as a higher percentage of them would eventually face the estate tax liability. This decrease in savings leads to less investment and a lower capital stock. The additional tax revenue decreases the debt ratio by 2 percentage points in 2040 and 3 percentage points in 2050, which crowds in private capital investment. However, since the change in the estate tax exemption only affects a small group of households, its impact on the economy is relatively small. The capital stock increases by 0.2 percent, wages go up by 0.1 percent, and GDP is 0.1 percent higher in 2050.
Younger and higher-income households value this policy the most, as they are paid higher wages during more of their working years. Older households who are wealthier are most negatively impacted by this policy as they are more likely to face the additional estate tax liability.
6 Taxes on the wealthy: Levy an annual 1 percent tax on net worth above $50 millionUnder current law, the federal government does not institute a wealth tax.
Under the policy option, the federal government would institute a tax on personal wealth above a $50 million threshold assessed at a rate of 1 percent. The tax would apply annually to the market value of all assets, both financial and nonfinancial, and would allow a deduction for liabilities.
The 1 percent tax on net worth above 50 million would disincentivize wealthy households from saving, which decreases overall capital accumulation in the economy. At the same time, the new tax revenue reduces debt held by the public as a share of GDP by 6 percentage points in 2040 and 7 percentage points in 2050, which has a crowding-in effect on private capital investment. As affected households tend to be highly productive and have a higher savings rate, the net effect is a decline in the capital stock by 0.7 percent in 2040 and 0.8 percent in 2050. Wages are lower by 0.3 percent in 2040 and 2050, since less capital makes workers less productive. GDP ends up 0.2 percent lower in 2040 and 0.3 percent lower in 2050.
This policy has a net negative effect on both younger households, who experience a decline in their wages over their lifetimes, and older households who tend to have more savings. The proposal has the biggest negative impact on the most productive and wealthiest households since they are more likely to be subject to the wealth tax.
7 Taxes on the wealthy: Raise the corporate tax rate from 21 percent to 28 percentUnder current law, C corporations are subject to an entity-level tax on net income at a flat rate of 21 percent. The corporate income tax base is generally defined as receipts minus operating expenses, with partial deductions allowed for investment expenses and interest costs.
Under the policy option, the corporate income tax rate would be raised to 28 percent.
A higher corporate tax rate increases the marginal tax rate on capital, which in isolation discourages saving and lowers capital investment. However, a higher corporate tax rate also increases the benefits of investment expensing and the value of the debt tax shield, which both tend to increase investment. In addition, the higher tax revenue decreases future government deficits and lowers the debt-to-GDP ratio by 19 percentage points in 2050, which crowds in private capital investment. On net, those effects combined lead to a 4.3 percent increase in the capital stock in 2040 and a 5.8 percent increase in 2050. Wages are higher by 1.4 percent in 2040 and 1.8 percent in 2050, while GDP is 1.5 percent higher in 2040 and 2 percent higher in 2050.
This policy benefits younger households the most, as they have more working years to gain from the considerably higher wages. More productive households in these younger cohorts are better off since they have larger labor income and thus benefit more from higher wages. The increase in the corporate tax rate, however, lowers the after-tax return on equity investment and therefore tends to make older and wealthier households with more savings worse off.
8 Entitlement reform: Combined packageThis reform package combines all the policy options under the "entitlement reform” theme, accounting for interaction effects.
The policy package, taken as a whole, is a net positive for long-run economic growth due to several factors. First, private investment is crowded in as government debt falls considerably (the debt-to-GDP ratio lowered by 67 percentage points in 2040 and nearly halving by 2050). Second, the size of the labor force increases as more workers delay retirement. These two effects more than offset the negative incentive effects of higher labor income taxes. By 2050, the economy is larger by 5 percent owing to a 10 percent increase in the capital stock, a 3.5 percent increase in hours worked, and a 1.4 increase in average wages.
The benefits of this policy package accrue largely to younger and richer households. The larger long-run economy means higher market wages and more capital income, which dominates the loss of current-day disposable income through higher taxes, as well as benefit cuts for future retirees.
9 Entitlement reform: Slow Social Security expenditure growth by indexing benefits to chained CPIUnder current law, Social Security benefits are determined upon initial eligibility at age 62 according to a formula based on lifetime earnings. After that, benefits are adjusted for inflation each year. This cost-of-living adjustment (COLA) is computed using the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
Under the policy option, the cost-of-living adjustment would be computed based on a chained version of the consumer price index (Chained CPI-W), which grows more slowly – typically about 0.2 percentage points -- than the CPI-W.
Indexing benefits to chained CPI decreases costs for the Social Security program. Relative to baseline, government debt as a share of GDP decreases by 3 and 5 percentage points in 2040 and 2050, respectively. Lower future deficits crowd in investment, which increase the private capital stock by 0.3 percent in 2030, 0.4 percent in 2040, and 0.6 percent in 2050. The increase in capital makes workers more productive and, as a result, increases wages. Hours worked go up slightly, as workers compensate for lower Social Security benefits by saving more. The combined effect of higher capital and more labor input increases output by 0.1 percent in 2030, 0.2 percent in 2040, and 0.2 percent in 2050.
Younger people, especially those with high incomes, benefit most from this policy since it increases wages. Older individuals tend to lose from this policy, as they do not benefit from higher wages but see their Social Security benefits reduced.
10 Entitlement reform: Make the Social Security benefit formula more progressiveUnder current law, the Primary Insurance Amount (PIA) for Social Security refers to the value of benefits for a retiree at full retirement age. The PIA is determined by splitting lifetime average indexed monthly earnings (AIME) into three portions and applying a constant percentage, called a PIA factor, to each portion. Under current law, PIA factors are 90, 32, and 15 percent. For an individual who first becomes eligible for old-age insurance benefits or disability insurance benefits in 2021, the PIA will be the sum of: (a) 90 percent of the first $996 of AIME, plus (b) 32 percent of AIME over $996 and through $6,002, plus (c) 15 percent of AIME over $6,002.
Under the policy option, PIA factors would be reduced in a progressive manner, from 90/32/15 to 90/27/10. The change would be implemented gradually over 30 years.
The policy reduces Social Security benefits for those with higher average indexed monthly earnings, reducing the fiscal cost of this program and thus lowering government debt. Since the change is gradually implemented over 30 years, there is a negligible effect on deficits in the first decade, but debt as a share of GDP goes down by 1 and 3 percentage points in 2040 and 2050, respectively. The lower debt crowds in private investment and as a result capital goes up by 0.3 percent in 2030, 0.6 percent in 2040, and 1.3 percent in 2050. However, lower future benefits in turn means a lower the expected return from work, and thus hours worked go down by 0.1 percent in 2030 and 2040 and by 0.2 percent in 2050. On net, GDP increases by 0.1 percent in 2030, 0.2 percent in 2040, and 0.4 percent in 2050.
Higher-income individuals who are currently alive tend to lose from this policy, since it reduces their Social Security benefits. Poor individuals that have not yet entered the workforce and those who will be born in the future tend to benefit from this policy since it raises wages.
11 Entitlement reform: Raise the full-benefit Social Security retirement age from 67 to 70Under current law, the full retirement age (FRA) for Social Security is defined as the age at which retirement benefits are equal to the Primary Insurance Amount (PIA). Retirement before the FRA reduces benefits, and retirement after FRA increases benefits. Under current law, the FRA for cohorts born in 1960 or later is 67.
Under the policy option, the FRA would be increased by 2 months per year until it reaches 70.
Increasing the retirement age from 67 to 70 reduces the cost of Social Security. This reduction is more pronounced in the future, when more workers retire later in life and the population is older on average. This results in lower government spending, so the debt-to-GDP ratio falls by 15 percentage points in 2040 and 25 percentage points in 2050. Since workers lose years in which they can claim benefits, workers delay retirement which increases aggregate labor supply. Hours worked increases by 1.2 percent in 2030, by 2.4 percent in 2040 and by 4 percent in 2050. The reduction in debt, which crowds in private investment, and the increase in hours worked, which makes each unit of capital more productive, together increase capital by 0.5 percent in 2030, 1.9 percent in 2040, and 4.8 percent in 2050. The combined effect of higher capital and higher hours worked pushes GDP up by 1 percent in 2030, 2.1 percent in 2040, and 4 percent in 2050.
12 Entitlement reform: Raise the Social Security payroll tax rate from 12.4 percent to 14.4 percentUnder current law, workers face a 12.4 percent tax rate on labor income in the form of wages and/or self-employment. The tax base is calculated as total earnings up to a limit (known as the taxable maximum earnings threshold), after which the tax rate is 0 percent. The tax is split evenly between employers and employees, with each party responsible for remitting 6.2 percent of taxable earnings. Proceeds from these taxes are statutorily linked to the Social Security program and are added to the Social Security trust fund.
Under the policy option, the total Social Security payroll tax rate would rise by 2 percentage points to 14.4 percent. The hike would be split evenly between employer and employees, leading to a 7.2 percent tax rate remitted by each party.
Increasing the Social Security payroll tax increases revenue for the government and thus directly lowers the federal debt by 11 and 13 percentage points in 2040 and 2050, respectively. Higher payroll taxes decrease incentives to work. As a result, hours worked fall by 0.1 percent in 2030, 2040, and 2050. While lower debt crowds in private investment, which increases capital formation, less labor supply decreases the marginal productivity of capital. The combination of these two effects results in a modest increase in capital in 2030 of 0.3 percent, 0.6 percent in 2040, and 1 percent in 2050. GDP remains the same as baseline in 2030, increases by 0.2 percent in 2040, and increases by 0.3 percent in 2050.
People who are currently working or about to enter the workforce tend to lose under this policy, as they pay the higher payroll tax rate. Individuals who are yet to be born tend to benefit due to higher future wages.
13 Entitlement reform: Double the Social Security taxable maximum earnings thresholdUnder current law, the Social Security payroll tax base is limited to earnings below $142,800 in 2021. This threshold is commonly referred to as the “taxable maximum earnings threshold” and is automatically adjusted each year to reflect average wage growth across the economy.
Under the policy option, the Social Security taxable maximum earnings threshold would increase to double its current value and, as under current law, would be indexed to wage growth thereafter. In 2022, the value would be $292,100. The Social security benefit formula for future retirees would remain unchanged.
Doubling the Social Security taxable maximum earnings threshold raises revenue considerably, decreasing government debt (measured relative to GDP) by 20 percentage points in 2040 and 30 percentage points in 2050. The increase in taxes tends to discourage work for higher-income individuals. Hours worked go down by 0.3 percent in 2030, and 0.2 percent in 2040 and 2050. Since productive (high-income) individuals work less, they save and invest less and as a result capital goes down even though the reduction of the debt crowds in private investment. On net, capital is 0.4 percent lower relative to the baseline economy in 2030 and 2040 and is 0.1 percent lower in 2050. Since both hours worked and capital decrease, GDP is lower by 0.6 percent in 2030, by 0.5 percent in 2040, and by 0.4 percent in 2050.
Higher-productivity workers in prime working years are those who tend to lose most from this policy, which directly taxes a larger share of their labor income. The bottom half of the income distribution benefits on net, irrespective of age.
14 Entitlement reform: Raise the Medicare retirement age from 65 to 67Under current law, people ages 65 or older, younger people with disabilities, and people with end stage renal disease are eligible to enroll in Medicare. The large majority of people who qualify for Medicare have worked and paid Medicare taxes for at least 10 years and do not have to pay premiums for Part A (Hospital Insurance). Beneficiaries must pay premiums for Part B (Medical Insurance) or Medicare Part D (Prescription Drug Coverage).
Under the policy option, the eligibility age for Medicare would increase from its current value of 65 to 67, while eligibility rules for people with disabilities or End Stage Renal Disease would remain unchanged.
Raising the Medicare eligibility age from 65 to 67 decreases government spending on Medicare. This reduces government debt as a share of GDP by 6 percentage points in 2040 and 8 percentage points in 2050. This lowers the crowd out effect and as a result capital goes up 0.3 percent in 2030, 0.6 percent in 2040, and 0.9 percent in 2050. This policy does not affect hours worked considerably, since on the one hand people want to work more to compensate for the loss of benefits, but on the other the average wage goes up since capital goes up and hence workers’ income is higher. On net, GDP goes up slightly by 0.1 percent in 2030, 0.2 percent in 2040, and 0.3 percent in 2050.
Due to computational constraints, dynamic distributional analysis is unavailable for Medicare policy. PWBM is working on adding this feature for future analysis.
15 Entitlement reform: Allow Medicare to negotiate drug pricesUnder current law, prescription drug prices covered under Medicare Part D (Prescription Drug Coverage) are negotiated between private insurers and manufacturers, similar to the process used by commercial insurers. The federal government is prohibited from negotiating prices on behalf of Medicare Part D recipients. The result is that drug price under Medicare Part D are roughly three times higher than under Medicaid, in which manufacturer rebates are specified by federal statute to reduce drug prices.
Under the policy option, Medicare would be allowed to negotiate drug prices directly with manufacturers. Based on an analysis by the Congressional Budget Office, we assume that Medicare drug prices would be 30 percent lower than under current law.
Negotiating a 30 percent discount in the price paid for prescription drugs in the Medicare program reduces government expenses, lowering the debt-to-GDP ratio by 9 and 12 percentage points in 2040 and 2050, respectively. The decrease in debt crowds in private investment, and thus capital goes up by 0.4 percent in 2030, 0.8 percent in 2040, and 1.4 percent in 2050. Since lowering prescription drug prices does not directly affect the budget constraint of individuals, the effect on hours worked is negligible. Due mainly to the increase in capital, GDP goes up by 0.1 percent in 2030, 0.3 percent in 2040, and by 0.5 percent in 2050.
Due to computational constraints, dynamic distributional analysis is unavailable for Medicare policy. PWBM is working on adding this feature for future analysis.
16 Broad-based reform: Combined packageThis reform package combines all the policy options under the "broad-based reform” theme, accounting for interaction effects.
The policy package increases taxes on a broad realm of economic activity and cuts government spending across several categories. The policies contain both negative and positive individual impacts on economic growth. One on hand, higher effective taxes rates through base-broadeners and the reduction in productivity-enhancing public investment tend to reduce output. On the other hand, lower future structural budget deficits (the debt-to-GDP ratio falls by 65 percentage points in 2050) reduce capital crowd-out. The net effect is positive: the economy is 1.1 percent and 1.6 percent larger in 2040 and 2050, respectively.
Future generations benefit most from this policy package due to higher future incomes, relative to baseline. All age groups above age 10 lose on net, as the direct effects of pricier consumption from the VAT outweigh the positive effects of a larger economy in the future. Wealthy retirees stand to lose the most from the package as they pay higher taxes on current consumption out of accumulated lifetime savings.
17 Broad-based reform: Enact a 1 percent value added tax (VAT)A value added tax (VAT) is a form of consumption tax remitted by businesses. The tax base is calculated as the difference between revenue and the cost of intermediate inputs. While a similar type of consumption tax is common at the state and local level, the federal government does not currently levy a broad-based consumption tax.
Under the policy option, the federal government would institute a value added tax of 1 percent on a broad definition of consumption. Most consumption with ascertainable market prices would be subject to the tax, while certain categories such as government health expenditures and nonprofit sector expenditure would be exempt.
The tax would be administered using the internationally-common “credit invoice system”, where businesses are taxed on the gross value of their receipts and are eligible to receive a credit for VAT paid on the value of their inputs.
A 1 percent value added tax (VAT) on a broad consumption base increases the cost of consumption relative to savings. Therefore, the VAT incentivizes households to save more, which is reflected in an increase in private capital. In addition, government debt as a share of GDP declines by 7 percent and 10 percent in 2040 and 2050, respectively, which crowds in additional savings and leads to subsequent increases in the capital stock. By 2040, the capital stock is 0.7 percent larger; by 2050, the capital stock has increased by 1.2 percent. This increase in the capital stock leads to higher wages as well; wages are up 0.2 percent and 0.4 percent in 2040 and 2050, respectively. The significant increase in new capital leads to increases in output as well. GDP increases by about 0.2 percent in 2040 and 0.4 percent in 2050.
The benefits from the increase in the VAT are strongest for people who have not yet entered the workforce, and who therefore will receive all the benefits of the higher wages and GDP. By contrast current retirees, who live on their accumulated savings and fixed income such as Social Security, end up having their spending power reduced by the VAT. Retirees therefore tend to lose from this policy, since they neither can save additional resources for retirement, nor do they benefit from higher wages.
18 Broad-based reform: Increase tax compliance through additional funding for enforcement and information reporting standardsUnder current law, the Internal Revenue Service (IRS) collects tax revenues for the federal government. The IRS enforces tax law using information reporting systems and audit efforts aimed at detecting and rectifying tax evasion. Tax compliance is generally high – roughly 84 percent of all income taxes owed are collected – but varies substantially across income type. Generally, types of income with substantial cross-party information reporting have the highest levels of compliance (for example, 99 percent of taxes on wage income are collected), while types of income without such reporting have the lowest levels of compliance (for example, 56 percent of taxes on sole proprietorship income are collected).
From 2011 to 2019, IRS funding fell by more than 16 percent in inflation-adjusted dollars.
Under the policy option, funding for the IRS would be increased by about $80 billion over a decade. The additional budgetary resources would be directed towards two main areas of enforcement. First, about $55 billion would be directed towards audit efforts. Second, $25 billion would be used to design and implement a new information reporting regime. Financial institutions would be required to report gross financial flows with the intention of creating a clearer “paper trail” for auditors to use when identifying tax returns likely to contain evasion.
Increased IRS enforcement leads to a higher effective tax rate on true economic income. Higher tax rates on personal income reduces the hours worked by about 0.2 percent in 2040 and 0.4 percent in 2050. However, this policy reduces the debt-to-GDP ratio by 8 percentage points in 2040 and 12 percentage points in 2050, which crowds in private capital investment. Private capital increases by 0.6 percent in 2040 and 1.0 percent in 2050. The increase in private capital leads to more productive workers, which is reflected in wages that are 0.2 percent and 0.4 percent higher in 2040 and 2050, respectively. Although labor hours worked decrease in this scenario, capital grows significantly and more than offsets the effects from the drop in labor. Therefore, output grows by about 0.1 percent in 2040 and 0.3 percent in 2050.
Because the effects on wages grow over time, the greatest benefits for this policy are enjoyed by households who have not yet entered the workforce. Older workers and retirees, however, face higher effective personal income taxes, which leads to lower lifetime consumption. Furthermore, the effects of the tax increase scale with income: higher-income households end up paying more in taxes. Therefore, higher-income and higher-productivity households tend to lose the most from this policy.
19 Broad-based reform: Disallow all itemized deductionsUnder current law, taxpayers have the option to either deduct certain qualified expenses (“itemized deductions”) from their income, or to claim a fixed-value “standard deduction” which provides a floor on allowable deductions from gross income. Allowable itemized deductions include mortgage interest, charitable deductions, state and local tax payments, medical expenses, and more -- each subject to various limitations. Starting in 2026, several key limitations on itemized deductions are scheduled to expire, which will lead to more taxpayers choosing to itemize and a greater amount of itemized deductions claimed.
Under the proposal, all itemized deductions would be disallowed, and all taxpayers would instead claim the standard deduction.
Disallowing all itemized deductions increases effective marginal tax rates, especially for those at the top of the income distribution. The resulting additional revenue reduces government debt, crowding in private capital investment. Government debt, relative to output, decreases by 25 percentage points and 33 percentage points in 2040 and 2050, respectively, while private capital increases by 1.2 and about 2.4 percent, respectively. Nonetheless, this policy also increases the tax rate on labor income, which discourages households from working. In this case, labor hours worked go down by about 0.3 percent in 2040 and about 0.2 percent in 2050. More capital makes workers more productive, and less labor makes labor scarcer, leading to significant increases in the wage rate of 0.5 percent and 0.9 percent in 2040 and 2050, respectively. The higher private capital is offset by the decline in hours worked, leading to a net increase in GDP of about 0.2 percent in 2040 and 0.7 percent in 2050.
Younger households are the primary beneficiaries of the increase in wages; they have an entire lifetime of work to accumulate the benefits of higher wages and lower work. Older, retired, and wealthier households tend to lose from removing all itemized deductions. The wealthier households end up paying significantly higher taxes because they are no longer able to itemize deductions. Older households also do not have the opportunity to benefit from the higher wages that result from this policy.
20 Broad-based reform: Cut annual discretionary spending by 5 percentUnder current law, federal noninterest spending generally belongs to one of two categories: mandatory outlays, which arise from formulaic spending programs like Social Security; or discretionary outlays, which Congress determines on an annual basis through the appropriations process. Examples of discretionary outlays include defense, education, housing, transportation, and more. Discretionary spending has averaged slightly more than 7 percent of GDP since 2000.
Under the policy option, discretionary outlays would be reduced by 5 percent in perpetuity relative to PWBM’s baseline projection.
Under this policy option, the cut in discretionary spending leads to a drop in the debt-to-GDP ratio of 6 percentage points in 2040 and 9 percentage points in 2050. Falling government debt leads to an increase in private capital of 0.6 percent in 2040 and 1.0 percent in 2050 relative to the current law baseline. More private capital makes workers more productive, which is reflected in a 0.2 percent increase in the wage rate in both 2040 and 2050. The overall effect on labor hours is close to zero. More capital leads to more GDP, which increases by about 0.2 and 0.3 percent in 2040 and 2050, respectively.
The economic effects of cutting discretionary spending tend to benefit households of all incomes and ages. Nonetheless, PWBM does not specify how households value the spending that is being cut, and households may place a value on the program cuts that are being implemented to finance this debt reduction package.
21 Broad-based reform: Cut annual infrastructure investment by 10 percentUnder current law, most federal infrastructure aid is appropriated through continuing resolutions. Total public infrastructure investment at all levels of government (federal, state, and local) in 2019 was about $227 billion.
Under the policy option, PWBM’s projection of federal infrastructure spending is cut by $37.8 billion per year in perpetuity. The result is that, net of anticipated changes in state and local spending on infrastructure, total public infrastructure spending declines by $22.7 billion per year, or 10 percent of the 2019 value of infrastructure investment.
In this scenario, federal infrastructure spending goes down by about $36.8 billion per year. This leads to a 2 percentage point drop in government debt in 2040 and a 3 percentage point drop in government debt in 2050. Although federal infrastructure aid goes down by $36.8 billion per year, this only leads to a $22.7 billion decline in actual infrastructure investment, which is 10 percent reduction compared to 2019 public infrastructure investment, as we anticipate that state and local governments increase their spending on public infrastructure to offset the decline in federal spending.
A large cut in federal infrastructure spending significantly decreases government debt, which in turn crowds in productive private capital investment. However, when the federal government reduces infrastructure spending, the amount of public capital goes down over time. Public capital increases the productivity of both private capital and labor; therefore, the decline in public capital disincentives investment. On net private capital increase by 0.2 percent in 2040 and 0.3 percent in 2050. Although private capital increases, which tends to increase labor productivity, the reduction in public capital tends to lower labor productivity. The overall effect on GDP is slightly positive: 0.02 percent and 0.03 percent in 2040 and 2050, respectively, mostly driven by the small increase in private capital.
The economic benefits of this policy are generally positive for households of all ages and incomes. Higher productivity households tend to benefit more, as the increase in wages is applied to their larger labor incomes.