Department of Computational Social Science Seminar Abstract-McBride & Entin

Friday, April 19 - 3:00 p.m.
Center for Social Complexity Suite
Research Hall, 3rd Floor

Title: Modeling the Budgetary and Economic Effects of Taxes

William McBride, Ph.D., Chief Economist
Steve Entin, Senior Fellow
Tax Foundation

Abstract: Taxes are something most people avoid thinking about, if at all possible. The issue of business taxation and cost recovery for investments is particularly obscure to all but a few, even though this is of critical importance to long run economic growth. As a result, official government modeling efforts in this area are mostly detached from reality, and understate the economic harm of taxing investment. The Tax Foundation has been working on a better model. It is composed of two parts: 1) a tax calculator, that uses IRS data on historic runs to calculate tax revenues and the distribution of taxes, and 2) a macroeconomic model of the long run economic effects of taxes, according to a neoclassical production function. The results from the macro model can be fed into the tax calculator for a “dynamic” tax revenue analysis. Our macro model is driven by how different taxes affect the cost of capital and labor. It borrows heavily from the work of Dale Jorgenson and others on the cost of capital. We will discuss this and our modeling of some recent federal tax legislation and proposals.