The cumulative effect of Hillary Clinton's tax proposals would be a $1.43 trillion increase in revenue over 10 years using conventional scoring methods or a $663 billion revenue boost after accounting for macroeconomic feedback, according to an October 12 analysis by the Tax Foundation.
The new estimates represent a significant change from the foundation's original analysis of the Democratic presidential nominee's plan, released in January. That analysis estimated Clinton would raise $498 billion on a static basis or $191 billion using dynamic scoring.
The additional revenue in the group's latest analysis comes from revisions to Clinton's estate tax plan and several of her proposed business tax reforms, such as an expansion of the net investment income tax base and limitations on like-kind exchanges. Clinton's estate tax changes would have "the single largest economic impact of all her policies," raising $309 billion over a decade and accounting for 40 percent of the macroeconomic effect of the plan.
"For her proposals I think it's fair to say the estate tax was the game-changer, moving her policies from having modest to almost insignificant effects on the long-run economy to a more meaningful negative impact on the economy," the author of the analysis, Kyle Pomerleau, told Tax Analysts. He said that the estate tax combines a narrow base with high marginal tax rates, and since many estates invest in productive capital, that puts downward pressure on incentives to save or invest.
The foundation also said that several of Clinton's proposals -- such as her proposed tax on high-frequency trading, her tax credit for profit sharing, or her ambiguous support of business tax reform -- lacked sufficient detail to be modeled and were excluded from the estimates. Pomerleau said the foundation had reached out to the Clinton campaign for the original analysis but received no response, so it relied only on the campaign's official policy descriptions for that analysis.
The analysis also made changes in how the effects of some Clinton proposals were estimated because of either new information or new assumptions. For example, the Tax Foundation modeled Clinton's proposal to limit itemized deductions after President Obama's proposed 28 percent cap on itemized deductions, which does not include charitable contributions but does apply to specific tax expenditures like the deductions for municipal bond interest and above-the-line retirement account contributions. The foundation also revised its assumptions about how Clinton's capital gains tax changes would affect how the gains are realized.
On a static basis, only the top income quintile of taxpayers would be affected by a tax increase, while all other quintiles would receive tax cuts that would increase their after-tax incomes between 0.1 percent and 2.2 percent, the analysis found. Taxpayers in the top quintile would see their after-tax incomes decline by 2.8 percent, while those in the top 1 percent would see a drop of 6.6 percent.
Under the foundation's dynamic scoring model, however, all income groups would see their after-tax incomes drop by at least 0.1 percent, with the top 1 percent seeing an 8.4 percent decline. The Tax Foundation attributed the overall decline in after-tax incomes largely to the macroeconomic effects that Clinton's tax increases would have on marginal tax rates for businesses and individuals, which the foundation said would shrink the economy in the long run and result in a narrower tax base.
The macroeconomic results shouldn't be surprising, according to American Action Forum President Douglas Holtz-Eakin, because "there's nothing in the Clinton plan for growth." As a result, any dynamic score of Clinton's tax plan would provide a worse outcome than the static estimate, so the only open question is how much worse it would be, said Holtz-Eakin, who also serves on the Tax Foundation's board of directors.
The Tax Foundation's updated analysis came a day after the Urban-Brookings Tax Policy Center (TPC) released its own estimates of the tax plans of both the Democratic and Republican presidential nominees, and the overall results of the organizations' static analyses are largely identical. Both the TPC and the Tax Foundation estimated Clinton's tax plans would yield a roughly $1.4 trillion revenue increase, while Republican presidential candidate Donald Trump's tax proposals would cost about $6 trillion.
Although the TPC has developed its own dynamic scoring model, Leonard Burman, the center's director, told reporters October 11 that it identified a "bug" in the model and that it would update its analyses with macroeconomic estimates later once that was corrected. The Tax Foundation's dynamic score of Trump's plan estimated it would cost between $2.6 trillion and $3.9 trillion, depending on how Trump's proposal to tax passthrough entities is interpreted.
Stephen Moore of the Heritage Foundation, a top economic adviser to Trump, has since attempted to clear up confusion over the proposed 15 percent rate for businesses, saying passthroughs would be eligible for the rate in some circumstances. Pomerleau told Tax Analysts on October 12 that if that were true, the Trump plan's cost would be closer to the Tax Foundation's higher-end estimate.
Like the Tax Foundation's report on Clinton's tax plan, the TPC's analysis found that her proposed tax increases would be limited to the top quintile, with the remaining 80 percent of taxpayers seeing an increase in after-tax incomes. Those in the bottom quintile would see a 0.7 percent increase in after-tax incomes, while after-tax incomes for the top 20 percent of earners would decline by 2.6 percent.
Likewise, both the Tax Foundation's and the TPC's estimates of after-tax income distributions for Trump's tax plan reveal tax cuts with benefits that skew heavily toward high-income earners. The foundation's September 19 analysis found that the upper-range estimate of Trump's tax plan would provide the top quintile with a 6.5 percent increase in after-tax income, while those in the bottom quintile would see their incomes rise by only 1.2 percent -- compared with 6.6 percent and 0.8 percent, respectively, according to the TPC's estimates. The Tax Foundation provided two estimates for the top quintile -- the lower being 4.4 percent -- again over the uncertainty surrounding the application of some of Trump's proposals.
"These are two professional, highly competent organizations that have done exactly what you'd expect with these proposals," Holtz-Eakin said of the plan estimates. He said that he looked forward to seeing the TPC's dynamic estimates of the plans, adding, "I think it's good to have competition in the ideas space."
CTJ Makes 3
Citizens for Tax Justice (CTJ) also released an updated analysis of Clinton's tax plan October 11, which found that it would raise $1.46 trillion over a 10-year period, with all taxpayers except those in the top 5 percent receiving at least small tax cuts.
CTJ had previously estimated in a September 26 report that Trump's tax plan would cost $4.8 trillion, although its model did not attempt to estimate Trump's proposed changes to passthrough taxation because of conflicting information released by the Trump campaign. Forty-four percent of Trump's proposed tax cuts would be distributed to the top 1 percent, according to CTJ's analysis.
Getting similar results on three different groups' conventional scoring analyses of Clinton's tax plans shouldn't be too surprising, though, Holtz-Eakin said. With many provisions, like Clinton's plan to implement the "Buffett rule" requiring taxpayers earning more than $1 million to pay a minimum tax rate, the parameters and data are quite clear, and the only real place for speculation on the revenue effect is how the behavioral response is modeled, he said.
Zoe Sagalow contributed to this article.