It was not a suggestion, it was an assumption. Jorgenson made that assumption to make his modelling easier. It was the cleanest way to extract all the taxes out of the price and keep everyone's take home pay the same. If Jorgenson had to model price increases and increases in take home pay for certain people, it would have made the model more complex. He would have to model behavior of people who seen the buying power of their nest egg dwindle. The real world effects are complex as most people (workers) will probably see more buying power while business owners and retirees will probably have less buying power.
"The real world effects are complex as most people (workers) will probably see more buying power while business owners and retirees will probably have less buying power."
Not surprisingly, I disagree. Those retirees having a substantial portion of their nesteggs in equities would do extremely well with the appreciation in the values of those equities. That is because a faster growing economy would lead to faster growth in corporate income, which is the basis for equity values. In most cases, I would expect that retirees' incremental valuation increases would be more than enough to offset what they pay for their consumption - unless they are consuming at extremely high levels far out of proportion to their means.
Why will business owners have less buying power? They will not pay any entity level taxes...no compliance costs....so their buying power will increase. What am I missing?