Move to a Flat 30 Percent Individual Income Tax Rate

This option applies a flat, 30 percent rate to taxable income. Lowering the top income tax rate on its own would cause many filers to be subject to the alternative minimum tax (AMT), muting the intended impact of the change, so this option also eliminates the AMT alongside the rate change. It leaves all other aspects of the individual income tax the same. Moving to a flat 30 percent tax rate on taxable income would increase marginal tax rates faced by most taxpayers, including lower- and middle-income taxpayers, reducing incentives to work and invest. The reduction in hours worked and in investment would shrink long-run output.

On a conventional basis, this option would decrease the primary deficit by $17,032.9 billion over the budget window. Long-run GDP would fall by 2.7 percent, while long-run GNP would fall by 1.0 percent. The gap between the effect on output and input is a result of the large change in the US budget deficit; a smaller budget deficit reduces interest payments to foreigners, which offsets some of the decline in GNP. On a dynamic basis, the primary deficit would decrease by $13,709.3 billion from 2027 through 2036, $3,323.6 billion less than the conventional estimate. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be lower than baseline, reaching 64.3 percent by 2056.

On average, in 2036, taxpayers would see decreases in their after-tax incomes of 8.5 percent. The top quintile of taxpayers would experience a 6.4 percent decrease, whereas the bottom quintile would experience a 0.6 percent decrease. But within the top quintile, the top 1 percent of taxpayers would experience an increase in after-tax income of at least 1.4 percent. On a long-run dynamic basis, taxpayers would see a 10.5 percent decrease on average.