Texas Governor Rick Perry’s presidential campaign is predicting that his 20-20 flat tax plan will grow the economy by over $11 trillion from 2014 to 2020, according to an analysis conducted by John Dunham and Associates (JDA) for the campaign and obtained by Business Insider.
But just how the economy would grow at such a fast clip is never justified by the analysis. The economic firm deferred all comment about its GDP projections to the Perry campaign — which wouldn’t comment on the analysis.
Perry’s plan calls for the creation of an optional 20 per cent personal income flat tax and lowers the corporate tax rate to 20 per cent, while eliminating corporate loopholes and subsidies — and also a reduction in government spending to about 18 per cent of GDP as part of a balanced budget amendment to the Constitution.
According to the campaign’s analysis, Perry’s plan would result in a $3.492 trillion increase to GDP in 2020 — the last year of its projection — a 16 per cent increase over the Congressional Budget Office baseline. (AEI’s James Pethokoukis was the first to report on the analysis of the Perry plan early this morning.)
JDA says its projections for GDP growth are solely the result of the plan’s tax savings — Perry’s flat tax would collect, according to the campaign’s best case scenario, $1.7 trillion less than the CBO projects.
If the plan was scored against the same baseline as the CBO — the way the government calculates the effect of tax plans — Perry’s plan would result in $4.7 trillion going into the federal Treasury.
The IMPLAN model used in the analysis measures how industries react to each other on a county-by-county level — but without details on the specific assumptions JDA and the Perry campaign made about how the tax cuts would filter through the economy and what spending would be cut, it is impossible to gauge the reliability of their conclusions.
Below is the entirety of the JDA’s explanation for its GDP calculations, which it notes includes some unspecified reduction in government spending.
The dynamic analysis used in this model was based on tax savings (or tax increases) for various income groups in each of the 7 years between 2014 and 2020. These savings were run through the IMPLAN input-output model as increases to income for each group and the resulting change in GDP was fed back through the model for subsequent years. This led to higher GDP growth estimates for each year beginning with 2014 (see Table 6). Based on this analysis, GDP is expected to grow faster than forecast by the CBO, reaching $26.5 trillion by FY 2020 – a 16 per cent increase.
These higher GDP forecasts lead to higher estimates for both Personal Income and Corporate Income tax revenues as resources are transferred from non-productive government activities to higher value private sector industries.
(Note this analysis assumes that lower revenues are offset by lower Federal government expenditures.)
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