The proposed tax increases in the Biden administration’s infrastructure plan could lead to 1 million fewer jobs in the first two years, according to a new study conducted by Rice University economists for the NAM.
"We are know intuitively that the federal tax reform has created jobs in the economy, but we had not quantified the jobs and investment incentivized by the federal tax reforms until now and we thank the NAM for this quality study by Rice University," said Ray McCarty, president and CEO of Associated Industries of Missouri.
Economists John W. Diamond and George R. Zodrow calculated the effects of increasing the corporate tax rate to 28%, increasing the top marginal tax rate, repealing the 20% pass-through deduction, eliminating certain expensing provisions and more.
The researchers found that these changes would cause large negative effects for the economy. The worst of these would include:
1 million jobs lost in the first two years;
By 2023, GDP would be down by $117 billion, by $190 billion in 2026 and by $119 billion in 2031; and
Ordinary capital, or investments in equipment and structures, would be $80 billion less in 2023, and $83 billion and $66 billion less in 2026 and 2031, respectively.
The study also notes the following:
Investments in intangibles, or “firm-specific capital,” are highly mobile and more sensitive to marginal tax rate changes. Such investments would fall 2.7% by year two and would be down a total of 3.8% by year five.
The average annual reduction in employment would be equivalent to a loss of 600,000 jobs each year over 10 years.
Real wages would fall by 0.6% in the long run, and total labor compensation, including wages and benefits, would decline by 0.6% initially before falling by 0.3% after 10 years. In the long run, total compensation would also decline by 0.6%.
Comments