Consolidate Individual Income Tax Brackets into Three Rates: 10, 25, and 35 Percent

This option creates a three-bracket income tax system: income currently taxed at 10 percent and 12 percent is taxed at 10 percent; income currently taxed at 22 percent, 24 percent, and 32 percent is taxed at 25 percent; and income taxed at 35 percent and 37 percent is taxed at 35 percent. Some individual taxpayers would experience increases in the tax rate they face at the margin, while others would experience decreases. Overall, marginal tax rates on labor and capital investment would be lower.

On a conventional basis, this option would increase the primary deficit by $738.0 billion over the budget window. Long-run GDP would rise by 0.1 percent, and long-run GNP would rise by less than 0.05 percent. On a dynamic basis, the primary deficit would increase by $686.5 billion from 2027 through 2036, $51.5 billion less than the conventional estimate. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be higher than baseline, reaching 180.8 percent by 2056.

On average, in 2036, taxpayers would see a 0.3 percent increase in their after-tax incomes. The top quintile of taxpayers would experience a 0.2 percent increase, whereas the bottom quintile would experience a less than 0.05 percent increase. Taxpayers between the 80^th and 95^th percentiles would experience a decrease in after-tax income. On a long-run dynamic basis, taxpayers would see a 0.5 percent increase on average.