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New Tax Law Set to Trigger Conversions From Pass-Through Entities to C-Corporations

Politico’s Ben White and Aubree Eliza Weaver write about the Penn Wharton Budget Model’s projection of business entity classification conversions in the aftermath of the Tax Cuts and Jobs Act (TCJA) in Morning Money: The Big Switch from Pass-Throughs.

Recent Rise in Gas Prices Offsets Some Households’ Gains from Tax Cuts

As noted in our brief, the Tax Cuts and Jobs Act reduced the direct tax liability of individuals by an estimated $1.3 billion, before considering macroeconomic feedback effects, over the period 2018-27. This reduction was achieved through a number of provisions that changed the individual income tax structure. Table 1 presents the average tax cut received by Adjusted Gross Income (AGI) percentile in 2018. The overall median tax cut is $401, with larger cuts going to groups with larger AGI.

Capitol Hill Push to Change Taxes on Capital Gains

Naomi Jagoda relies on the Penn Wharton Budget Model’s analysis of the push on Capitol Hill to change tax law to adjust capital gains for inflation in Senate Dems to Mnuchin: Don't index capital gains to inflation.

Senator Ted Cruz’s Proposal to Index Capital Gains to Inflation

Senator Ted Cruz (R-TX) recently introduced a bill titled the “Capital Gains Inflation Relief Act of 2018”. The proposal would let investors adjust asset cost basis for inflation, resulting in a lower tax bill upon realizing capital gains.

Why Are Recent Immigrants Better-Educated Than Ever Before?

In a previous blog post, I described two significant changes in the characteristics of newly arriving immigrants (legal and unauthorized) to the U.S. between 1997 and 2017. First, the share of recent immigrants aged 25 and older who had bachelor’s or advanced degrees rose from 30 percent to 48 percent. Second, the origins of new immigrants to the U.S. shifted dramatically, as immigration from Mexico and Europe declined in importance while immigration from Asia and Africa grew. In this post, I examine the relationship between these two changes.

Senate GOP Wary of New Tax Cut Sequel

In his article “Senate GOP wary of new tax cut sequel,” Alexander Bolton described Republican reactions to the CBO scoring of the new tax bill and opinions over making the individual tax cuts permanent. He cites projections from Penn Wharton Budget Model (PWBM) in order to demonstrate the likely effects on the national debt from extending the individual tax cuts.

The White House's Trade Policies and the Economy

A recent CNBC article by John Harwood, Peter Navarro says Trump’s trade policies are ‘good for the market,’ but economists aren’t buying it, applies two Penn Wharton Budget Model (PWBM) studies on the effects of tax cuts by industry and the probable effects of a trade war. The author analyzes the possibility that recent administration actions increasing protectionist measures would slow economic growth.

Incentives and Corporate Tax Cuts

Justin Wolfers’ New York Times article, "How to Think About Corporate Tax Cuts" analyzes the economic effects of President Trump’s corporate tax cuts and references Kent Smetters of Penn Wharton Budget Model. While the tax bill promises to increase the incentive to invest and gives companies more cash, Smetters argues that in the short run giving more money to corporations helps the owners.

The Effect on Households of Different Methods of Financing a UBI

To evaluate the potential effects of a hypothetical $1.5 trillion Universal Basic Income (UBI) program, PWBM conducts analyses of the program under three different financing policies. Each of the three financing options has different effects on household savings, consumption, and labor decisions, which leads to significantly different effects on the aggregate economy and household welfare.

Indexing Capital Gains to Inflation

Richard Rubin of the Wall Street Journal reports that the Trump administration is considering changing tax law so that capital gains would be adjusted for inflation. Under current policy, households owe taxes on the full nominal value of certain capital gains; this proposal would index the asset basis to inflation, leaving only the real value of any capital gain as taxable income. Our analysis suggests that this policy would cost $102 billion dollars over the next decade. While high-income households would benefit most, the share of taxes paid by AGI would not change meaningfully.

Recent Immigrants Are Better-Educated Than Ever Before

From 1997 to 2007, a newly arrived adult immigrant to the United States was about as likely to have a college degree as to have not finished high school. During that period, each group accounted for about one third of new arrivals (including both legal and unauthorized immigrants). Over the decade since 2007, those odds changed dramatically. The share of recent immigrants with a college degree grew by nearly 50 percent, while the share without a high school degree fell by a similar proportion (see Figure 1). By 2017, a recently arrived immigrant was almost three times as likely to have a college degree as to have not finished high school.

The Impact of a Trade War Could Wash Out Tax Cuts

A CNNMoney story, “Trade War Would Wipe Out Gains From Tax Cuts, Penn Analysis Says,” applies two Penn Wharton Budget Model (PWBM) studies on trade and tax cuts. Patrick Gillespie points out that two of President Trump’s policies could have opposing effects on economic growth. If the new tariffs announced by President Trump lead to an all-out trade war, gains from the tax cuts could be washed away in the short run and swamped in the long run.

Wage Growth and Tax Cuts by Industry

A recent Bloomberg article by Mark Whitehouse, “Are Tax Cuts Driving Raises? It's Hard to See,” cites a Penn Wharton Budget Model (PWBM) study about the effects of the Tax Cuts and Jobs Act by Industry. The author analyses recent reports of wage growth to see if they are related to the tax bill passed this fall.

PWBM Infrastructure Analysis has Impact on White House

Philadelphia Inquirer reporter Erin Arvedlund digs into recent a recent post from the White House about PWBM’s analysis of the White House infrastructure plan and PWBM’s response. “War of Words Between Wharton and Trump White House,” compares the White House’s statement that PWBM lacks transparency with the model equations and methods made available by PWBM. PWBM is excited to see the White House engage with our work and we look forward to further discussion.

A Response to the White House’s Critique of PWBM’s Infrastructure Analysis

Last Thursday, Transportation Secretary Elaine Chao was asked in Senate testimony to respond to PWBM’s recent analysis of President Trump’s FY 2019 infrastructure plan. On Friday, the White House issued a formal response that is critical of PWBM’s analysis.

To quickly recap, the President’s infrastructure plan proposes that the federal government spend $200 billion in incentives to produce $1.5 trillion in total additional infrastructure spending across state and local governments, including private sector partnerships. PWBM analysis of the President’s plan estimates that total infrastructure spending, across all layers of government, would increase between $20 billion to $230 billion, including the $200 billion federal investment. We also estimate that this spending would have little impact on GDP.

Trump Infrastructure Plan Falls Short of Its Goal

A recent CNBC article by John W. Schoen, “Trump infrastructure plan comes up $1 trillion short of its funding goal, analysis finds”, discusses the President’s newly proposed infrastructure plan. Analysis by PWBM shows that the plan will fall more than $1 trillion short of its investment goal.

Will President Trump’s Plan Stimulate State Spending on Infrastructure?

New York Time’s reporter Jim Tankersley analyzes PWBM’s predictions for President Trump’s infrastructure plan. "Experts Doubt Trump's Infrastructure Plan Will Boost Economy," compares and further explores the implications of the differences between Mr. Trump's promises and PWBM's forecast.

Design Matters for Infrastructure Plan Outcomes

For Teen Workers, Parents’ Education Matters

Teenage employment has declined significantly since the late 1990s. Using data from the Current Population Survey, Figure 1 shows that 63 percent of teens aged 16 to 18 worked in 1993, but that percentage fell to 41 by 2015.

Listen to a Discussion of President Trump’s Infrastructure Plan

Knowledge@Wharton features PWBM research in an article about President Trump’s infrastructure plan. The article also includes research from Virginia Tech’s Kevin Heaslip and Duke’s Henry Petroski.