NCPA’s New DCGE Tax Model

In case you missed it yesterday, we here at NCPA are pleased to announce that we now have a tax model to – well – model taxes!  Developed by Beacon Hill Institute, the dynamic computable general equilibrium (DCGE) model, will measure the impact of tax changes on economic variables such as capital stock, employment and wages.

It is no secret that the U.S. corporate tax rate — now the highest in the developed world — sends jobs overseas and reduces wages of American workers. However, the first results from the NCPA-DCGE model show that a hypothetical 50 percent reduction in the corporate tax rate would, over a 25-year period:

  • Increase real GDP by 1.6 percent in the first year, and by 4.3 percent in the 25th year of implementation.
  • Increase investment 7.2 percent in the first year and by 8.1 percent in the 25th year.
  • Increase employment 2.9 percent in the first year and 3.5 percent in the 25th year.
  • Increase income for all earners, with the lowest 10 percent of earners seeing the largest percentage increase in the first year.

The misperception is that high corporate tax rates only affect the rich, but since taxes paid by firms are passed on to workers in the form of lower wages, employees at all earning levels suffer, particularly the lowest-skilled workers.

The NCPA-DCGE model will be used to analyze the effects of the tax plans of select presidential candidates in the near future, as well as a variety of other tax issues.

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