Flat 30 Percent Income Tax with Expanded Credits

This option combination replaces the graduated individual income tax with a single flat rate, broadens the base, and expands refundable credits for low-income workers. The combination taxes all individual income at a flat 30 percent, doubles the earned income tax credit for workers without qualifying children, makes the child tax credit fully refundable, and eliminates the home mortgage interest deduction, the charitable deduction, the individual alternative minimum tax, and the SALT deduction.

Moving to a flat 30 percent tax rate increases marginal tax rates for low- and middle-income tax filers, while lowering marginal tax rates for higher income filers. Expanded refundable tax credits both raise and lower marginal tax rates for low-income tax filers, depending where they sit on phase-in and phase-out ranges. Eliminating itemized deductions raises marginal tax rates and increases the tax burden on activities that current benefit from the deductions, including investment in homeowner-occupied housing and charitable giving. On net, this combination raises marginal tax rates on most filers, decreasing hours worked, capital investment, and economic output.

On a conventional basis, this option would decrease the primary deficit by $17,349.8 billion over the budget window. Long-run GDP would fall by 3.3 percent, while long-run GNP would fall by a smaller 1.5 percent because the significant increase in tax revenue reduces interest payments on the debt, offsetting some of the decline in GNP. On a dynamic basis, this option would reduce the primary deficit by $13,287.3 billion, $4,062.6 billion less than the conventional estimate. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be lower than baseline, reaching 67.5 percent by 2056.

On average, taxpayers would see a decrease in their after-tax incomes of 8.4 percent in 2027 on a conventional basis, 8.6 percent by 2036, and 11.1 percent in the long run on a dynamic basis. However, both the bottom quintile and the top 1 percent would experience increases in after-tax income in all years.