Passage of President Reagan's tax reform plan would raise the level of the gross national product by 2.5 percent to 3.2 percent in about 10 years, according to a study released yesterday by the Council of Economic Advisers.
This increase would be the equivalent of a $600 to $900 increase in income for each American household, and it would continue each year into the future, the study said.
The impact of the proposed tax changes indicated by the study is about three times as great as that shown in another analysis done earlier this year by John Makin, Michael Allison and Don Fullerton of the American Enterprise Institute. The AEI analysis concluded that the level of GNP eventually would be raised by less than 1 percent by the Reagan tax plan.
Most of the gain would come from allocating the nation's resources more efficiently. Tax considerations now play a significant role in many spending and investment decisions by both individuals and businesses. Both by eliminating some tax breaks and reducing marginal tax rates, the tax plan would mean that those decisions would be driven by economic rather than tax considerations. The result, both studies agree, would be a higher output of goods and services.
The major difference between the two analyses is that the CEA economists believe that there would be less underreporting of income as a result of the lower tax rates.