Broaden the Base, Lower the Rates

This option combination broadens the individual income tax base by tightening the itemized deduction limitation to 28 percent while lowering all individual income tax rates by 10 percent across the board.

Broadening the base subjects more income to the tax, reducing distortions across types of activities and incomes that are taxed, while lowering the rate reduces the burden on work, saving, and investment. Lower marginal tax rates on work and investment lead to an increase in long-run economic output.

On a conventional basis, this option would increase the primary deficit by $3,532.2 billion over the budget window. Long-run GDP would rise by 1.2 percent, while long-run GNP would rise by 0.9 percent. On a dynamic basis, the primary deficit would increase by $2,459.5 billion from 2027 through 2036, $1,072.7 billion less than the conventional estimate. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be higher than the current law baseline, reaching 194.5 percent by 2056.

On average, taxpayers would see an increase in their after-tax incomes of 1.6 percent in 2027 on a conventional basis, 1.8 percent by 2036, and 2.8 percent in the long run on a dynamic basis.