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National Association of Manufacturers
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DUE TO PRINTER ERROR

Chart on page 14 is correct; title is incorrect-should read Chart 1:MACROECONOMIC MODEL

Chart on page 16 is correct; title is incorrect-should read Chart 2: TAX IMPACT PROJECT MODEL

SUMMARY OF THE REPORT

This report describes a study of the impact on the economy which would be generated by each of seventeen proposals for changes in federal taxation of business income. Survey data were obtained from 313 diverse corporations representing 36% of total U. S. manufacturing sales. These data were used as input to a large macroeconomic computer model of the U. S. economy.

Every change in taxation of business income naturally would affect both corporate earnings and the entire economy in some way. The purpose of the Tax Impact Project is to focus on this relationship and to develop information which will be of use during the consideration of proposed modifications of the U. S. tax structure. The report presents the findings of the project in a manner which allows for comparisons of the economic impact of various proposals. The findings indicate that certain proposals are of major importance to the business community in allocating its resources in the most efficient manner.

Seventeen proposals for changes in federal taxation of business income were studied, and their overall domestic economic impact is described as changes in:

It is recognized that the Tax Impact Project represents only one of a number of possible approaches to the economic analysis of tax proposals. As such, it is one step in the development of a reasonable method for obtaining such analyses. Thus, this report is intended to indicate the direction and the order of magnitude of the impact of the tax changes which were studied. In this regard, the econometric findings presented in this report should only be interpreted as somewhat imprecise estimates as are all estimates of what will in fact happen in the future.

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The project is not simply a scale-up to the whole economy from the survey
response data. Through use of a large macroeconomic model, it also takes into
account a complex array of interactions and feedback effects between different
parts of the economy, which are intended to simulate the real economic world.
Such effects, of course, do not occur simultaneously. The findings are best
interpreted as the likely economic consequences a few years after enactment
of a tax proposal, i.e., after the effects of the proposed change would have
had a chance to work their way throughout the national economy.

THE EFFECT ON TOTAL EMPLOYMENT FOR EACH OF THE SEVENTEEN PROPOSALS IS SHOWN
IN THE FOLLOWING TABLE AND IS EXPRESSED AS THE DIFFERENCE FROM WHAT WOULD
HAPPEN IN FUTURE YEARS WITHOUT THE TAX CHANGE. Results are presented in the
body of the report for real fixed investment, manufacturing employment, real
GNP, and net federal tax receipts.

54-397 O 75-32

Significantly, the findings indicate that most of these proposed changes would reduce the level of total employment over a period of time.

A SHORT-TERM INCREASE IN FEDERAL TAX RECEIPTS IS, OF COURSE, EXPECTED IF BUSINESS TAXES ARE INCREASED. THE FINDINGS OF THIS STUDY, HOWEVER, SUGGEST THAT SUCH INCREASES ARE OBTAINED AT HIGH COST IN THE LONG TERM, THROUGH

ON THE OTHER HAND, SIGNIFICANT DECREASES IN BUSINESS TAXES WILL GENERATE
LONG-TERM BENEFICIAL EFFECTS ON INVESTMENT, EMPLOYMENT, THE ECONOMY AND
FEDERAL TAX RECEIPTS.