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.
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.”
Alan Rappeport and Jim Tankersley of The New York Times cite Penn Wharton Budget Model’s forecast of the fiscal and social effects of adjusting capital gain taxes for inflation in their piece, Trump Administration Mulls a Unilateral Tax Cut for the Rich.
Earlier this month, the Treasury Department reported that federal tax receipts fell seven percent from June 2017 to June 2018, largely due to a 34 percent decline in corporate income tax receipts. While significant revenue loss is expected in 2018 following the passage of the Tax Cuts and Jobs Act (TCJA) last December, the size of the recent decline raised concerns that the legislation may be costing more than anticipated.
Washington Post columnist Catherine Rampell uses Penn Wharton Budget Model’s analysis of tax reform to delve into the implications behind strong second quarter U.S. economic growth in The economy’s great. That doesn’t mean Trumponomics is.
This June, PWBM’s First Spring Policy Forum discussed what real world evidence has to say about public infrastructure policy. PWBM’s Jon Huntley looked at how infrastructure plans can be designed to maximize growth while Ernst & Young’s Mike Parker shared a broad picture of the impact of federal spending on infrastructure.
The Tax Cuts and Jobs Act (TCJA) overhauled many elements of the US federal tax code, some of which will serve to reduce the tax incentive to make charitable contributions.
In Small Towns Are Booming, Thanks to Rising Oil Prices, The Wall Street Journal’s Rebecca Elliot and Harriet Torry cite PWBM research on the recent rise in gas prices.
Yahoo Finance Video shows Andy Serwer’s interview with Steve Ballmer from the Penn Wharton Budget Model’s June 22nd Spring Policy Forum. Steve Ballmer, co-founder of USA Facts, owner of the LA Clippers former CEO of Microsoft, spoke on the potential of USAFacts to promote fact-based public policymaking.
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.
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.
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 (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.
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.