Raise Taxes on the Wealthy and Corporations

This option combination raises taxes on high-income households and corporations by increasing the corporate income tax rate to 28 percent, the top individual income tax rate to 50 percent, and the top tax rate on long-term capital gains and qualified dividends to 30 percent.

These rate hikes would increase marginal tax rates on labor, investment, and saving, reducing hours worked, capital investment, and saving. Reductions in hours worked and capital investment would reduce long-run GDP, while reductions in saving would further reduce long-run GNP. The additional revenue from the higher tax rates would decrease the budget deficit, reducing interest payments, which would offset some of the decline in GNP.

On a conventional basis, this option would decrease the primary deficit by $3,390.6 billion over the budget window. Long-run GDP would fall by 1.7 percent, while long-run GNP would fall by 1.5 percent. On a dynamic basis, the primary deficit would decrease by $1,954.3 billion from 2027 through 2036, $1,436.3 billion less than the conventional estimate. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be lower than current law baseline, reaching 164.4 percent by 2056.

On average, taxpayers would see a decrease in their after-tax incomes of 1.6 percent in 2027 on a conventional basis, 1.7 percent by 2036, and 3.0 percent in the long run on a dynamic basis. The most pronounced after-tax decreases occur in the top 1 percent of taxpayers, but taxpayers across the income spectrum would be negatively affected on both a conventional and dynamic basis.