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.
The New York Times reported Tuesday that the Trump Administration’s “rosy” outlook on the U.S. economy is “increasingly diverging” from economists’ forecasts. The White House predicted that the economy will continue to grow at 3 percent through 2024 (adjusted for inflation), while the Congressional Budget Office (CBO) released their forecasts standing at 2.3 percent for 2019, slowing to 1.7 percent in 2020. Meanwhile, the Federal Reserve’s forecast also predicts 2.3 percent growth in 2019, and Goldman Sachs suggested a more conservative 2.1 percent growth this year based on consumer confidence figures and regional business surveys.
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.
Previously, we analyzed the maturity structure of federal debt back to 1953. Below, we describe how PWBM incorporates the maturity structure of federal debt into our dynamic overlapping-generations (OLG) model to make projections of interest paid on the federal debt.
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.
On October 11, 2018, the CNN show, “Quest Means Business” features a heated debate about the recent rate hikes by the Federal Reserve and President Trump’s disapproval of them, in which he cites recent economic growth. Opinion columnist for “The Washington Post”, Catherine Rampell, cites PWBM — alongside the Congressional Budget Office, International Monetary Fund, and Federal Reserve — as finding that the economic boost from the Tax Cuts and Jobs Act is temporary.
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.
In Yes, the Tax Cuts Have Cost the U.S. Treasury Money Bloomberg’s Justin Fox describes how tax revenue in 2018 is lower than tax revenue in 2017. Over the first six months of 2018, the cost of the Tax Cuts and Jobs Act was generally in line with PWBM’s December projections.
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.