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Tax Policy

First Tax Day Under the Tax Cuts and Jobs Act

CNN reported on the first Tax Day under the Tax Cuts and Jobs Act. Lydia Depillis highlighted key economic effects of the 2017’s Tax Cuts and Jobs Act.

Analysis of Fiscal Therapy: Conventional and Dynamic Estimates

PWBM projects that the proposals in Fiscal Therapy by William Gale would reduce the debt to-GDP ratio from 188 percent to 17 percent in 2050 and increase long-run economic output by 7 percent.

Americans Startled by Impact of New Tax Law on Returns

Knowledge@Wharton invited Senior Economist at PWBM, Richard Prisinzano, on as a guest speaker on March 12, 2019, as well as the Center for Tax Law and Policy’s Michael Knoll, to discuss the impact of the TCJA’s tax changes on tax filers this year.

Annual Data is Better than Monthly for Understanding Tax Revenues

FactCheck.org’s Eugene Kiely explored how to think about the impact of 2017’s Tax Cuts and Jobs Act (TCJA) on tax revenue through official measures of tax receipts. Treasury reports show that in 2018 tax receipts were slightly lower than in 2017. However, tax receipts in February 2019 were 10% higher than in February 2018. Kiely asked PWBM’s Alexander Arnon what these figures mean for future tax receipts.

Need Help Understanding the Impact of the New Tax Law on You? Check Out The Wall Street Journal Tax Calculator Powered By PWBM

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.

Experts Debate Impact of TCJA on Growth and Investment

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.

Raising Taxes on the Rich Can Have Unintended Consequences

Penn Wharton Budget Model Senior Economist Richard Prisinzano discussed raising taxes on the wealthy with Alan Auerbach, Professor of Economics and Law at University of California Berkeley, and Knowledge@Wharton host Dan Loney. You can listen to the full discussion below.

Growth in Business Investments Tied to Oil Prices, Not Tax Cuts

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.

The Hidden Revenue Cost of a 70% Top Marginal Rate

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.

The Price of Oil is Now a Key Driver of Business Investment

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.

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

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.

Marriage Matters for the Gender Pay Gap Among Self-Employed

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.

Business Tax Comparison Calculator for Federal Taxes Tutorial

Business Provisions in New Representative Brady Bill Cost $4 Billion Over 10-Years

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.

LIFT Act Benefits Go To Middle Class

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.

25 Cents Per Gallon Doubles Tax Revenue for Highways

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.

Lower Corporate Debt Projected Under the Tax Cuts and Jobs Act

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.

Analyzing the Budgetary and Incentive Effects of Senator Kamala Harris’s Proposed LIFT Act

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.

The Economic Boost from the Tax Bill is Temporary

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 OfficeInternational Monetary Fund, and Federal Reserve — as finding that the economic boost from the Tax Cuts and Jobs Act is temporary.

As Predicted TCJA Isn’t Paying For Itself: Confirmed by Figures from the Treasury Department

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.