Production and Trade Impacts of Tax Reform

Estimates of tax reform’s impacts usually provide an economy-wide assessment, but attention at the industry or sectoral level is often limited. Our study uses a computable general equilibrium (CGE) model to estimate the disaggregated impacts of tax reform. Focusing on agriculture, we use survey data to calculate the tax rates faced by primary agriculture producers; and IRS data to capture tax rates for all other producers. Conducting a tax reform scenario that lowers taxes for individuals and corporations, we find that impacts on investment weigh heavily on model results. That is, firms that are attractive to domestic and foreign investment have gains in demand for their products; while other sectors, such as primary agriculture, experience decreases in production. These results highlight the demand saturation for products, especially for food, in the United States. As such, we provide an extension of the tax reform scenario, equalizing tariffs faced by U.S. agricultural producers with global tariffs. Those results indicate that foreign market access, coupled with tax reform, provides benefits to the entire economy, especially agriculture.