Why Brookings' $1.4 Trillion Tax Plan Overstates the Revenue

There is a second blind spot. The plan targets accelerated depreciation – the ability for companies to write off capital spending faster than the asset's useful life. This is the single biggest incentive for equipment and software investment in the tax code. Eliminating it would raise revenue in year one. It would also push the after-tax cost of a new factory or server rack higher. Companies that borrow to fund that spending would face a higher effective interest cost on top of the higher tax bill. The combined drag on capital formation is larger than the sum of the two parts.

Supporters of the plan argue that the U.S. corporate rate is still below the OECD average of 25.5% even at 28%, so competitiveness is not at risk. That comparison misses the effective rate. Because of deductions and credits, U.S. corporations already pay an effective rate near 18%, according to the Government Accountability Office. Raising the statutory rate to 28% while closing deductions would push the effective rate above 25% – higher than the OECD average and higher than the rate in most European economies that rely on value-added taxes rather than corporate income taxes for revenue.

The Hamilton Project's proposal is serious policy work. The revenue estimate is built on assumptions that past data contradicts. A tax increase that reduces investment, raises the cost of capital, and pushes the effective rate above peer-country levels will not produce the $1.4 trillion its authors project. The real number is lower, and the cost in economic growth is higher than the footnote suggests.

The Joint Committee on Taxation is expected to release its own score of the proposal in the coming weeks. That estimate will use dynamic scoring that accounts for behavioral responses. It will be the number that matters.