Narrowing the Tax Base and Raising Tax Rates

This option combination narrows the individual income tax base by restoring the personal exemption while raising ordinary individual tax rates in each bracket by 10 percent across the board.

Narrowing the tax base and imposing higher marginal tax rates increases the tax burden on work, saving, and investment, which reduces long-run economic output.

On a conventional basis, this option would reduce the primary deficit by $244.2 billion over the budget window. Long-run GDP would fall by 0.9 percent, while long-run GNP would fall by 1.1 percent. On a dynamic basis, the primary deficit would increase by $646.3 billion from 2027 through 2036, $890.5 billion more than the conventional estimate. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be higher than baseline, reaching 182.0 percent by 2056.

On average, taxpayers would see a 0.1 percent decrease in their after-tax incomes in 2027, benefiting the bottom 80 percent of taxpayers on average while reducing after-tax incomes for the top 20 percent. In the long run, taxpayers would see a 0.9 percent decrease in after-tax incomes on a dynamic basis.