We project that The Social Security 2100 Act would nearly eliminate Social Security’s conventional long-range imbalance while reducing the program’s dynamic short-range imbalance.
The Act reduces annual shortfalls that would otherwise add to national deficits under current policy, but at the cost of new tax distortions. The two effects nearly cancel in the macroeconomy. We project that the Act decreases GDP by 0.7 percent by 2029 and decreases GDP by 2 percent by 2049.
Previously, PWBM showed that reforms that combined tax increases with progressive benefit reductions could boost GDP by over 5 percent by 2049.
We examine a range of policy options that put Social Security on a sustainable path.
The analysis emphasizes the need for analyzing Social Security reforms using deep modeling that reveals important interactions that challenge conventional wisdom.
Tax increases generally produce more growth than “current policy” analysis where shortfalls are combined with the standard unified surplus measure. Additional debt can be combined with changes in benefits to produce even more economic growth. Reforms that combine tax increases and progressive benefit reductions produce the most growth.
Recently, the House Ways and Means Committee introduced “Tax Reform 2.0” that includes new incentives to start up a business, enhanced savings accounts and makes permanent the individual tax cuts in the 2017 Tax Cuts and Jobs Act.
In April of 2018, PWBM anticipated and estimated the effects of the largest piece of this legislation that makes the TCJA individual tax cuts permanent.
This brief updates that analysis for the new 10-year budget window and incorporates the rest of the provisions in “Tax Reform 2.0.”
Penn Wharton Budget Model’s updated Social Security Simulator allows users to build Social Security reform plans to see the budgetary and economic impact of those plans.
Users can try up to 648 different policy combinations.
The model can handle a much wider range of Social Security policy options, which are not shown to conserve space. Policymakers, major media outlets and thought leaders who want to test different Social Security reforms can contact us for estimates.
Since the major Social Security reforms were passed in 1983, Social Security Trustees have slowly reduced their projected Social Security trust fund exhaustion date from at least 2058 to 2034. Yet, Trustees’ estimates still don’t incorporate key future macroeconomic variables, including the nation’s growing debt.
Using a model that incorporates future macro-economic forces, PWBM projects that the Social Security trust fund depletes in 2032. More importantly, we project much larger future annual cash-flow shortfalls. Relative to the payroll tax base, we project a cash-flow shortfall in 2032 that is 36 percent larger than the Trustees’ estimate for that year. By 2048, our projected cash-flow shortfall is 77 percent larger.
If Social Security shortfalls continue to contribute to the federal government’s unified deficits, consistent with no changes in taxes or benefits, we project that the federal debt-to-GDP ratio will exceed 200 percent by 2048, a path that is not sustainable.
We project that the Tax Cuts and Jobs Act (TCJA) will cause 235,780 U.S. business owners---77 percent of whom have incomes of at least $500,000---to switch from pass-through entity owners to C-corporations, primarily to take advantage of sheltering their income from tax by converting to C-corporations.
The biggest switchers include doctors, lawyers and investors, especially if owners can afford to defer receipt of business income to a later year. Other business owners, who are qualified to use the 20 percent deduction for pass-through business income, including painters, plumbers, and printers, are more likely to remain as pass-through entities.
We project that about 17.5 percent of all pass-through Ordinary Business Income will switch to C-corporations.
Senate Democrats propose spending $1,022 billion on public infrastructure over the next 10 years, financed with taxes on personal income and corporate income.
An additional dollar of federal aid could lead state and local governments to increase total infrastructure spending by less than that dollar since state and local governments can often qualify for the new grant money within their existing and planned infrastructure programs. Based on an extensive literature review, we estimate that infrastructure investment across all levels of government increases between $225 billion and $1,039 billion, including the $1,022 billion federal investment.
Depending on how much state and local governments spend on infrastructure in response to federal aid, we estimate that the plan changes GDP between -0.1 and 0.1 percent by 2032 relative to no policy change. By 2042, the plan changes GDP between -0.3 and -0.2 percent.
PWBM previously analyzed the effects of the tax bill passed this December. Most of that bill’s tax cuts for individuals (non-businesses) expire at year-end 2025. This brief reports the budgetary and economic effects of indefinitely extending the individual-side tax cuts.
By 2027, we project that debt increases between $573 billion and $736 billion. However, GDP is relatively unchanged, although slightly contracts, because this standard 10-year budget window covers only two years of tax cut extensions.
By 2040, we project that GDP contracts by 0.6 percent to 0.9 percent relative to current law, where the tax cuts for individuals are set to expire. Debt increases between $5.2 trillion and $6.1 trillion.
Public support for a Universal Basic Income (UBI) has been increasing over time, and several experiments are already underway.
The Roosevelt Institute recently published an analysis of a UBI proposal that would pay $6,000 per year to every adult in the United States. Roosevelt estimates that GDP would increase by up to 6.8 percent within eight years after the policy’s onset, if the policy were deficit financed.
We estimate the impact of the same plan on the federal budget and economy using a richer dynamic model. If deficit financed, we project that same UBI plan would increase federal debt by over 63.5 percent by 2027 and by 81.1 percent by 2032. GDP falls by 6.1 percent by 2027 and by 9.3 percent by 2032. The smaller tax base also sharply reduces Social Security revenue, by 7.1 percent by 2027 and by 10.4 percent by 2032.
Major U.S. trading partners have already indicated they might retaliate to new U.S. trade tariffs recently announced by President Trump. New tariffs could, therefore, lead to a “trade war.” However, game theory also suggests that U.S. trading partners could eventually respond with “trade opening,” depending on the ultimate payoffs to each party in the trading partnerships.
We estimate that an all-out trade war would reduce GDP by 0.9 percent by 2027 and by 5.3 percent by 2040. Wages would decline by 1.1 percent by 2027 and 4.8 percent by 2040, relative to current policy. A trade opening would have the opposite effect: GDP would increase between 0.2 to 0.7 percent by 2027 and between 1.3 to 4.0 percent by 2040. Wages would increase between 0.3 to 0.8 percent by 2027 and between 1.2 - 3.6 percent by 2040, relative to current policy.
The downside risk of a trade war, therefore, is larger than the upside potential from a trade opening.
However, based on previous experience reviewed herein, most of the grant programs contained in the infrastructure plan fail to provide strong incentives for states to invest additional money in public infrastructure. Indeed, an additional dollar of federal aid could lead state and local governments to increase infrastructure total spending by less than that dollar since state and local governments can often qualify for the new grant money within their existing infrastructure programs. We estimate that infrastructure investment across all levels of government would increase between $20 billion to $230 billion, including the $200 billion federal investment.
We estimate that the plan will have little to no impact on GDP.
President Trump proposes to increase infrastructure investment by $1.5 trillion over 10 years by attaching incentives to $200 billion of new federal spending. However, this plan lacks details about implementation. We, therefore, consider three possible options.
By 2027, we estimate that GDP is between 0.0 and 0.5 percent larger than under current law, depending on which one of the three policy options is used. By 2037, GDP is between 0.0 and 0.4 percent higher.
By 2027, debt held by the public is between 0.4 and 0.9 percent larger than under current law. By 2037, debt is between 0.4 percent lower and 0.6 percent larger.
The White House Fiscal Year 2018 Budget proposes spending $200 billion in new federal spending over 10 years to stimulate a total new infrastructure investment of $1 trillion.
However, separately, other changes to infrastructure programs in the budget propose to reduce federal spending between $185 billion to $255 billion over the next 10 years, depending on whether certain changes are temporary or permanent.
On net, therefore, the White House 2018 Budget proposes changing federal infrastructure spending between -$55 billion to $15 billion over 10 years.
The current U.S. statutory corporate tax rate is 35 percent. However, due to various deductions, credits and income deferral strategies, most corporations pay a lower rate, known as the effective tax rate (ETR), which averages about 23 percent under current law across all industries over the next decade. However, this value varies considerably across industries, with mining paying 18 percent and agriculture paying 33 percent.
The TCJA reduces the statutory corporate tax rate from 35 to 21 and the average ETR falls from 21 to 9 percent in 2018. However, by 2027, the ETR doubles in value to 18 percent, mostly due to expiring provisions.
In the short run, the biggest winners of the TCJA are capital-intensive industries like utilities, real estate and transportation, which benefit the most from temporary expensing of equipment. However, over time, several industry ETR’s will actually rise above the new statutory rate of 21 percent in future years.
By 2027, under our standard economics assumptions, we project that GDP is between 0.6 percent and 1.1 percent larger, relative to no tax changes. Debt increases between $1.9 trillion and $2.2 trillion, inclusive of economic growth.
By 2040, we project that GDP is between 0.7 percent and 1.6 percent larger under our baseline assumptions, and debt increases by $2.2 to $3.5 trillion.
Under standard assumptions, the traditional measure indicates that in 2019, 33 percent of the reduction in taxes in the Senate plan accrues to households in the top one percent of the income distribution. By 2027, this group receives almost 43 percent of the tax change and, by 2040, 48 percent.
In contrast, the share of taxes paid by households in the top one percent of the income distribution is only moderately lower under the Senate TCJA. Under current policy, the top one percent will pay 28 percent of federal income taxes by 2027, rising to 30 percent by 2040 due to increasing progressivity over time under current policy. Under TCJA, their tax share falls to 26 percent by 2027 and returns to 28 percent by 2040.
By 2040, the top one percent will pay a slightly larger share of the nation’s tax base under TCJA relative to what they pay today under current policy, although both figures round to 28 percent.
By 2027, under our standard economics assumptions, GDP is projected to be between 0.5 percent and 1.0 percent larger, relative to no tax changes. Debt increases between $1.8 trillion and $1.9 trillion, inclusive of economic growth.
By 2040, GDP is projected to be between 0.4 percent and 1.2 percent larger under our baseline assumptions, and debt increases by $2.6 to $3.1 trillion.
Additional sensitivity analysis indicates that even under assumptions favorable to economic growth, by 2027, GDP is projected to be between 1.0 percent and 1.9 percent larger, and debt increases between $1.5 trillion and $1.8 trillion.
This brief compares the Child Tax Credit (CTC) expansion plans in the House tax bill, the Senate tax bill and the Rubio-Lee proposal.
The Penn-Wharton Budget Model projects the House CTC plan costs $373 billion, the Senate CTC plan, as passed by committee, costs $557 billion, and the Rubio-Lee proposal costs $742 billion over 10 years.
In terms of distributional impact, the House CTC plan increases benefits for middle income families. The Senate CTC plan, as passed by committee, increases benefits for lower income families, doubles benefits for middle income families and increases benefits from $0 to $2,000 for higher income families. However, the Senate CTC plan never reaches its maximum refundable amount of $2,000 due to sunset provisions. The Rubio-Lee proposal reaches $2,250 in 2025 before returning to current law value of $1,000 in 2026.
This brief compares Penn Wharton Budget Model’s (PWBM) dynamic projections (which include economic feedback effects) of The Senate Tax Cuts and Jobs Act (TCJA) against the recent projections issued by the Joint Committee on Taxation. The results are substantially similar.
Both PWBM and JCT find that the Senate TCJA reduces tax revenues by about $1 trillion over the next 10 years, net of outlays. PWBM’s and TCJA’s 10-year revenue estimate (net of outlays and interest) differs by only $3 billion. Both PWBM and JCT project that the economy under the Senate TCJA plan will be 0.8% larger on average over the first 10 years relative to current policy.
To use the reconciliation process that allows certain bills to pass with a simple majority vote in the Senate, the Senate Tax Cuts and Jobs Act (amended) must satisfy the Byrd Rule.
PWBM projects that the Senate bill will satisfy one part of the Byrd rule, as the 10-year net revenue shortfall will be less than $1.5 trillion in the associated budget resolution.
However, the Byrd Rule also requires that bills do not reduce net revenue (revenue net of outlays) after the 10-year budget window. Thus far, government scorekeepers have not weighed in on the Rule publicly. PWBM, however, projects that the provisions in the Senate TCJA will reduce net revenue in each year from 2028 to 2033 and will therefore fail the Byrd Rule.
This brief reports Penn Wharton Budget Model’s (PWBM) dynamic analysis of The Senate Tax Cuts and Jobs Act (TCJA), as amended with sunset provisions on November 15, 2017.
If the sunset provisions are allowed to expire as scheduled, including economic feedback effects, revenue falls between $1.3 trillion and $1.5 trillion over the 10-year budget window, ending in 2027. Debt increases between $1.4 trillion and $1.6 trillion, which is larger than the revenue losses due to additional debt service. By 2040, revenue falls between $1.1 trillion and $2.1 trillion, while debt increases by $1.7 to $2.4 trillion.
PWBM projects that GDP will be between 0.3 percent and 0.8 percent larger in 2027 relative to no tax changes. By 2040, GDP is projected to be between 0.2 percent and 1.2 percent larger.
This brief reports Penn Wharton Budget Model’s (PWBM) conventional (static) analysis of The Senate Tax Cuts and Jobs Act (TCJA), as amended on November 15, 2017, which includes numerous sunsets to comply with the Byrd Rule governing the budget reconciliation process.
PWBM’s conventional (static) analysis finds that the bill lowers tax revenues by $1.3 trillion over the first 10 years.
PWBM projects that provisions in TCJA continue to reduce revenue after the 10-year window and we list the reason for each: (a) permanent revenue losses due to a lack of sunset; (b) income shifting across years to exploit sunsets; and (c) reclassification of income to exploit differences in marginal tax rates, potentially permanent or due to sunsets.
On Thursday November 9th, 2017 the Senate Committee on Finance majority released its version of the Tax Cuts and Jobs Act that changes both individual and business taxes.
Penn Wharton Budget Model (PWBM) finds that the bill lowers tax revenues by $1.4 to $1.7 trillion over 10 years, including accounting for growth effects. Debt rises by $1.9 to $2.0 trillion over the same period. Looking beyond the 10-year budget window, by 2040, revenue falls between $4.3 trillion and $5.2 trillion while debt increases by $7.0 to $7.6 trillion.
PWBM projects that GDP will be between 0.3% to 0.8% larger in 2027 relative to its value in that year with no policy change, and between -0.2% and 0.5% larger in 2040. Over the long-run, additional debt reduces the positive impact on GDP.
This brief reports Penn Wharton Budget Model’s (PWBM) dynamic analysis of The House Tax Cuts and Jobs Act (TCJA), as amended and reported out by the Ways and Means Committee on November 9, 2017.
After including the tax bill’s effects on economic growth, TCJA is projected to reduce revenues between $1.5 trillion and $1.7 trillion. Debt rises by about $2.0 trillion over the same period. Looking beyond the 10-year budget window, by 2040, revenue falls between $3.6 trillion and $4.4 trillion while debt increases by $6.4 to $6.9 trillion.
In 2027, GDP is between 0.4% and 0.9% higher than with no tax changes. By 2040, the difference between GDP under the House tax bill and current policy is between 0.0% and 0.8%, due to larger debt.
We present the static (conventional) distributional impact of the Tax Cuts and Jobs Act (TCJA) under two measures: the traditional measure and as tax shares.
Under standard assumptions, the traditional measure indicates that in 2018, 37 percent of the reduction in taxes accrues to households in the top one percent of the income distribution. By 2027, this group receives 53 percent of the tax change and, by 2040, almost 55 percent.
In contrast, the share of taxes paid by households in the top one percent of the income distribution is only moderately lower under TCJA. In 2018, the top one percent of the income distribution pays 28 percent of federal taxes under current policy and 27 percent under TCJA. By 2027, this group pays 28 percent under current policy and 26 percent under TCJA. By 2040, the tax share falls slightly from 30 percent under current policy to 28 percent under TCJA. Due to increasing progressivity over time under current law, the top one percent will still pay a slightly larger share of the nation’s tax base by 2040 under TCJA relative to what they pay today under current law.
This brief reports Penn Wharton Budget Model’s (PWBM) dynamic analysis of the Tax Cuts and Jobs Act (TCJA), which complements our static analysis previously released.
PWBM’s dynamic analysis finds that, depending on parameter values, the bill lowers tax revenues between $1.4 trillion to $1.7 trillion over 10 years while increasing federal debt between $2.0 trillion and $2.1 trillion over the same time period. By 2040, debt is between $6.3 trillion and $6.8 trillion higher than otherwise.
TCJA raises GDP in 2027 between 0.33% and 0.83% relative to its projected value in 2027 with no policy change. However, this small boost fades over time, due to rising debt. By 2040, GDP may even fall below current policy’s GDP.
Penn Wharton Budget Model’s new comprehensive Tax Policy Simulator allows users to build tax reform plans and see the budgetary and economic impact of those plans.
Users can vary 16 key tax provisions, for a total of 4,096 policy combinations.
The model accommodates a much wider range of tax policy options, which are not shown to conserve space. Policymakers, major media outlets and thought leaders who want to test different tax reforms can contact us for estimates.
On March 4, Dylan Moriarty and Richard Rubin presented the Wall Street Journal Tax Calculator, powered by Penn Wharton Budget Model, to help taxpayers understand tax law as they prepare their taxes. Taxpayers only need to enter a few key characteristics such as income and marital status to get an estimate of their tax liability from 2018 to 2027.
In a previous blog post, I considered how wage changes are related to the decision to move and the decline in household movement observed in the last two decades (see Figure 1 below). However, wage changes aren’t the only reason households choose to move. Changing motivations for moving are illustrative in examining the broader context of internal migration.
The Economist’s print edition, published February 7th, reports that “Some Fights About the Tax Cuts and Jobs Act Seem Over.” Public opinion polls indicate that voters think that “large corporations and rich Americans” are the ones benefiting from the tax law. Meanwhile, policy analysts continue to debate the details.
Hundreds of thousands of federal government workers were recently on furlough due to a partial lapse in appropriations. Furloughed employees are barred from working and are not paid, but recent legislation guarantees that they will receive back pay “on the earliest date possible after the lapse ends.” The ambiguous status of federal workers on furlough--employed, but not working--will be reflected in next Friday’s jobs report. Furloughed federal workers will be counted as both employed and unemployed in January.
In a recent interview on 60 Minutes, Congresswoman Alexandria Ocasio-Cortez presented the idea of instituting a 70 percent marginal tax rate on income over $10 million. Many commentators have weighed in on this proposal, both with op-eds supporting and criticizing this type of policy.
A conventional revenue estimate of the new tax rate would incorporate a traditional elasticity of taxable income. However, a second factor is very important for high-income taxpayers: a significant share of income above $10 million is earned by owners of pass-through businesses. We project that a significant amount of pass-through business owners will respond to this tax by reorganizing as C corporations to minimize their tax liability. This shift could cause the new 70% tax rate to lose as much as 43 percent of revenue that would otherwise be raised.
US production of crude oil has more than doubled since 2008. Starting in the mid-2000s, the application of horizontal drilling and hydraulic fracturing to tight oil formations led to a surge in US supply known as the shale boom. In this post, I discuss the shale boom’s impact on the relationship between business investment and the price of oil. I then estimate the effect of the recent rise in oil prices on investment in 2018. I find that oil prices might even account for most of the increase in the growth rate of investment in 2018.
According to USAFacts, in 2015, the federal government paid more than $220 billion in interest, which is six percent of the federal budget and more than one percent of GDP. Thus, federal interest payments are a major component of the federal budget and significantly impact on the U.S. economy. The maturity structure of federal debt--the sizes of, due dates of, and interest rates on federal debt--affects federal interest payments. Longer-term debt issued at higher interest rates increases interest payments but “locks in” those payments for a long time. Shorter-term, lower-interest debt lowers interest payments but increases the impact of changes on interest rates on the federal budget as federal debt is refinanced.
This past Friday, Dr. Kevin Hassett, Chairman of the Council of Economic Advisers, critiqued Penn Wharton Budget Model’s analysis of the “Tax Cuts and Jobs Act” (TCJA), signed into law by President Trump in December 2017. Dr. Hassett delivered his remarks at the 2019 American Economic Association meeting. The AEA meeting is the largest annual event of academic and government economists, held this year in Atlanta, Georgia.
Internal migration of working-age people in the United States has fallen by more than a third – from 18.9 percent in 1994 to 11.4 percent in 2018 (see Figure 1). This phenomenon has received significant scholarly attention – Cooke (2013) for example, attributes this decline to the rise of information and communication technologies. Alternatively, Molloy, Smith, and Wozniak (2011) point to broad macroeconomic shifts.
Reduced internal migration has important economic implications, particularly for labor markets. We find that wages grow faster for movers, especially for those with a college degree.
The rise of the ‘gig economy’ means that understanding patterns of self-employment is more important than ever for designing tax benefits and subsidies that affect business activities. In fact, self-employment represents as many as 1 in 5 jobs.
We find that gender differences in self-employment patterns are mostly driven by the differences across marital status. Married women are more likely to be self-employed than single women. On average, self-employed married women work fewer hours than men and single women, regardless of employment type, and married women who are employer-employed. These differences carry over to earnings.
On November 26th, the chairman of the House Ways and Means committee, Kevin Brady, released a new tax proposal. The bill can be treated as having five parts: Extenders, Disaster Relief, Retirement and Savings, Business Provisions and Technical Corrections to the Tax Code.
Last month, Senator Kamala Harris (D-CA) introduced her tax plan, the LIFT the Middle Class Act. This bill aims to give monthly payments to Americans who qualify in the form of a tax credit. Penn Wharton Budget Model has analyzed the potential impact of the LIFT Act on the budget and effective marginal tax rates. We find the proposal would cost the federal government approximately $3.1 trillion over the ten-year budget window and an additional $3.7 trillion over the following decade.
In contrast to earlier this year, November has seen consecutive days of falling oil prices. This drop has led to lower costs for consumers at the pump. With the annual growth rate of investment in public infrastructure slowing, some have suggested that now is the time to increase the federal gas tax. Recently, a former Secretary of Transportation urged the Administration to seize the opportunity to raise the gas tax. In the past, President Trump has endorsed an increase of 25 cents per gallon. The last increase in the federal gas tax was a quarter century ago in 1993 to 18.4 cents per gallon.
In 2017, corporations had a lower cash to debt ratio than ever before. However, the Tax Cut and Jobs Act passed in December of 2017 reduced, but didn’t eliminate, the tax incentives for firms to take on debt. Therefore, PWBM projects that corporate debt will be seven to nine percent lower going forward.
Senator Kamala Harris recently announced a proposal to establish a new refundable tax credit. This proposal (henceforth referred to as the “LIFT credit”) would be similar in design to the existing Earned Income Tax Credit (EITC), providing large payments -- up to $6,000 annually for married filers -- to low- and middle-income households. The LIFT credit would be available to households with either labor earnings or Pell grants, and would offer an option to receive benefit payments monthly rather than yearly. PWBM’s preliminary analysis suggests that on a conventional scoring basis, this policy would cost nearly $3.1 trillion over the ten year budget window (2019-2028), and would substantially change effective marginal tax rates for certain households.
Jim Tankersley emphasized how recent tax reform will not pay for itself in his New York Times article, "No, Trump’s Tax Cut Isn’t Paying for Itself (at Least Not Yet)." Even though federal revenues increased marginally in 2018, it will not be enough to cover the tax cut. On October 15th, the Treasury Department announced that despite economic growth and low unemployment, the federal budget deficit grew by 17 percent.
PWBM’s Dynamic OLG model simulates the partially-open U.S. economy in a way that is more consistent with economic behavior than standard “model blending” exercises. The difference between the two techniques becomes more pronounced over time due to the nation’s expanding debt path.
The recent Tax Cuts and Jobs Act (TCJA) contains two key international tax provisions: the tax on Global Intangible Low-Taxed Income (GILTI) and the reduced tax rate on Foreign Derived Intangible Income (FDII). These provisions were designed to encourage United States-based multinationals to locate intangible intellectual property in the U.S. rather than in foreign jurisdictions. However, an aspect that is overlooked is that these same provisions also create incentives for U.S. firms to acquire tangible assets abroad and to sell tangible assets in the U.S. Future monitoring of these activities is required to assess the extent to which U.S. multinationals will shift production overseas in response to the incentives created by GILTI and FDII.
An important part of the discussion surrounding the passage of the Tax Cuts and Jobs Act (TCJA) was the accumulation of untaxed profits in U.S. corporations’ foreign subsidiaries, which were estimated to be as high as $2.8 trillion in 2017. Before 2018, these earnings were generally not subject to U.S. taxes unless they were paid to the U.S. parent corporation as a dividend (“repatriated”), leading many companies to accumulate profits abroad. The TCJA introduced a deemed repatriation provision, which provides a tax “holiday” for foreign earnings by taxing them at a reduced rate of 15.5 percent on cash and eight percent on other assets. Speaker Paul Ryan argued that the TCJA’s tax holiday for foreign dividend payments directly affects the economy because, “money will come back and that will help economic growth.” Indeed, many companies have already committed to significant repatriation amounts, with Apple notably pledging to pay $38 billion in tax on repatriated income.
The passage of the Tax Cuts and Jobs Act brought with it a new 20 percent deduction for income earned from a pass-through business. The IRS recently released proposed regulations that clarify some of the issues associated with the new deduction. Our model suggests that depending on the effectiveness of the regulations, the overall cost of the deduction could be reduced between $54 and $65 billion over the 10-year budget window.
In this blog entry, we use PWBM’s OLG model to explore the dynamic effects of capital gains indexation, which includes the impact of the proposed policy change on economic growth. We project that this policy change will produce no meaningful economic feedback effect over the next decade.
To finance government spending above tax revenues, the federal government issues debt. According to USAFacts, in 2015 the federal government paid more than $220 billion in interest on this debt. Moreover, interest on the federal debt is growing larger, and it is becoming an increasingly important part of PWBM’s long-term budget projections. To make more accurate projections of interest paid on the federal debt, PWBM will begin projecting the maturity structure of federal debt.
Kevin Werbach, professor of Legal Studies and Business Ethics at Wharton and founder of Supernova Group, spoke at Penn Wharton Budget Model’s Spring Policy Forum. He discussed the uses and risks of blockchain, a technology he argues is the “most overhyped technology of our time” as well as “the most significant fundamental advance in digital platform since the Internet.”