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Brief, Tax Policy, Economic Growth
Mariko Paulson
Senator Elizabeth Warren’s Wealth Tax: ...

  • Senator Elizabeth Warren has proposed a wealth tax equal to 2 percent of net worth above $50 million and 6 percent of net worth above $1 billion, which her campaign estimates would raise $3.75 trillion over 10 years.

  • PWBM estimates that the proposal would raise about $2.7 trillion over fiscal years 2021-2030, not including macroeconomic effects. Including macroeconomic effects, PWBM estimates that the proposal would raise about $2.3 trillion over the same period.

  • PWBM projects that the proposal would reduce GDP by 0.9 percent in 2050 under the standard budget scoring convention that additional revenues reduce the deficit. If the revenues were instead spent on public investments, PWBM projects GDP in 2050 would fall between 1.0 and 2.1 percent, depending on the productivity of the investment. Average hourly wages in the economy in 2050, including wages earned by households not directly subject to the wealth tax, would fall between 0.8 and 2.3 percent due to the reduction in private capital formation.

Senator Elizabeth Warren’s Wealth Tax: Budgetary and Economic Effects
Blog Post, Tax Policy
Mariko Paulson
The Revenue-Maximizing Capital Gains Tax Rate: ...

Under current law, PWBM estimates that a 33% capital gains tax rate maximizes revenue, but this rate increases to 42% if stepped-up cost basis at death were eliminated.

Blog Post, Tax Policy, Economic Growth
Mariko Paulson
Policy Options: Increase Tax Rates on Capital ...

We estimate the budgetary and economic effects of increasing the top rate on long-term capital gains and qualified dividends from 20 percent to 24.2 percent, which is enacted on January 1st, 2021. We project that it will raise around $60 billion of additional revenue on a conventional basis over the 10-year budget window and increase GDP by 0.1 percent by 2050.

Blog Post, Tax Policy, Economic Growth
Mariko Paulson
Policy Options: A 1% Value-Added Tax

We estimate the budgetary and economic effects of a new broad-based 1 percent value-added tax (VAT) with a progressive universal rebate calculated based on earnings, which is enacted on January 1st, 2021. We project that it will raise $700 billion of additional revenue on a conventional basis over the 10-year budget window and increase GDP by 0.8 percent by 2050.

Blog Post, Tax Policy, Economic Growth
Mariko Paulson
Policy Options: A Carbon Tax of $30 per ton

We estimate the budgetary and economic effects of a new carbon tax of $30 per ton of emissions, which is enacted on January 1st, 2021, rising by inflation plus 5 percent through 2050. We project that it raises $1.6 trillion of additional revenue on a conventional basis over the 10-year budget window and increases GDP by 2.2 percent by 2050.

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President Biden’s Proposal to Extend the Medicare Trust Fund

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President Biden’s Proposal to Extend the Medicare Trust Fund

PWBM estimates that President Biden’s new Medicare proposal would increase the solvency of the Medicare trust fund from the year 2028 to 2053. However, a significant share of that increase comes from redirecting existing (current law) revenue to the trust fund. Another portion comes from unspecific expenditure reductions that lack the details required to score. Counting only new income without unspecified expenditure reductions, we project, as an illustrative alternative, that the HI trust fund would remain solvent until 2037.

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The Excise Tax on Stock Repurchases: Effects on Shareholder Tax Burdens and Federal Revenues

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The Excise Tax on Stock Repurchases: Effects on Shareholder Tax Burdens and Federal Revenues

President Biden has proposed raising the current excise tax rate on stock repurchases from 1 percent to 4 percent. We estimate that, for domestic shareholders, this tax increase would eliminate about 85 percent of the current-law tax preference for dividends over stock repurchases.

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Budgetary Cost of Newly Proposed Income-Driven Repayment Plan

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Budgetary Cost of Newly Proposed Income-Driven Repayment Plan

We estimate President Biden’s newly proposed Income-Driven Repayment (IDR) Plan will cost between $333 to $361 billion over the 10-year budget window, more than twice as much as the cost estimate released by the Biden Administration. These costs are in addition to the one-time cost of direct loan forgiveness that we previously estimated at $469 billion.

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Long-Term Financial Implications of Current Federal Budget Policies

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Long-Term Financial Implications of Current Federal Budget Policies

Under current law, we project that national debt will rise to 225% of GDP by 2050 and continue to rise thereafter. Changing demographics will reduce future economic growth.

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The Biden Student Loan Forgiveness Plan: Budgetary Costs and Distributional Impact

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The Biden Student Loan Forgiveness Plan: Budgetary Costs and Distributional Impact

President Biden’s new student loan forgiveness plan includes three major components. We estimate that debt cancellation alone will cost up to $519 billion, with about two-thirds of the benefit accruing to households making $88,000 or less. Loan forbearance will cost another $16 billion. The new income-driven repayment (IDR) program would cost another $70 billion, increasing the total plan cost to $605 billion under strict “static” assumptions. However, depending on future IDR program details to be released and potential behavioral (i.e., “non-static”) changes, total plan costs could exceed $1 trillion.

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Forgiving Student Loans: Budgetary Costs and Distributional Impact

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Forgiving Student Loans: Budgetary Costs and Distributional Impact

We estimate that forgiving federal college student loan debt will cost between $300 billion and $980 billion over the 10-year budget window, depending on program details. About 70 percent of debt relief accrues to borrowers in the top 60 percent of the income distribution.

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Senate-Passed Inflation Reduction Act: Estimates of Budgetary and Macroeconomic Effects

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Senate-Passed Inflation Reduction Act: Estimates of Budgetary and Macroeconomic Effects

PWBM estimates that the Senate-passed version of the Inflation Reduction Act would reduce non-interest cumulative deficits by $264 billion over the budget window. The impact on inflation is statistically indistinguishable from zero. GDP falls slightly within the first decade while increasing slightly by 2050. Most, but not all, of the tax increases fall on higher income households.

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Inflation Reduction Act: Comparing CBO and PWBM Estimates

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Inflation Reduction Act: Comparing CBO and PWBM Estimates

PWBM and CBO find an almost identical impact of the Inflation Reduction Act of 2022 (“IRA”) on the budget, with small differences stemming from the timing of the corporate minimum tax revenue. The impact on inflation is statistically indistinguishable from zero for either estimate.

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Inflation Reduction Act: Preliminary Estimates of Budgetary and Macroeconomic Effects

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Inflation Reduction Act: Preliminary Estimates of Budgetary and Macroeconomic Effects

PWBM estimates that the Inflation Reduction Act would reduce non-interest cumulative deficits by $248 billion over the budget window with no impact on GDP in 2031. The impact on inflation is statistically indistinguishable from zero. An illustrative scenario is also presented where Affordable Care Act subsidies are made permanent. Under this illustrative alternative, the 10-year deficit reduction estimate falls to $89 billion.

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Decomposing the Decline in Estate Tax Liability Since 2000

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Decomposing the Decline in Estate Tax Liability Since 2000

We estimate that the federal estate tax would have generated 9 times more revenue in 2019 without the tax changes in 2001 and 2017.

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Webinar: Minimum Corporate Income Taxes. A discussion with Alan Auerbach (University of California-Berkeley), Michelle Hanlon (MIT), and (moderator) Kent Smetters (Wharton).

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Minimum corporate income taxes are currently being debated as a way to generate tax revenue while preventing highly profitable companies from using tax loopholes to reduce their tax bills. In particular, a minimum tax based on income that corporations report on financial statements has been included in both the House and Senate versions of Build Back Better. Minimum taxes, such as a minimum tax on multinational corporations, are also being considered as part of tax changes codified in international agreements. Questions that will be addressed in this webinar include: Are minimum corporate income taxes efficient in general? What are the challenges with different approaches to imposing a minimum tax, both domestically and internationally? What are potential minimum tax alternatives that do not use financial statement income but can raise similar levels of revenue?

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The Decline in Fertility: The Role of Marriage and Education

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We relate the decline in the birth rate to two demographic factors closely associated with women’s fertility patterns: marriage and educational attainment. Married women are at least three percentage points more likely to have a child than unmarried women, and simultaneously marriage rates among women 25 to 29 declined 15.9 percent since 2006. Women who complete 4 years of college are less likely to have a child, while completion rates of 4 years of college rose 10 percent for women over the past decade.

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Measuring Fertility in the United States

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The U.S. population’s total fertility rate is now approximately 1.7 births per female, which is below the replacement rate of 2.1 that is required for the U.S. population not to shrink without increases in immigration. Women are delaying motherhood, from the 2006 average age range of 25 to 29 to the 30 to 34 age range today.

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Mortality by Education—an Update

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In 2018 and 2019, age-specific mortality rates for ages 60 through 80 continued to decline by 0.5 percent annually. For the same age group, age-specific mortality increased for those without a high school diploma but decreased 2.5 percent for those with a BA or advanced degrees.

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Three-Month Federal Gas Tax Holiday: Estimated Cost Reductions to Households

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We estimate that suspending the federal excise tax on gasoline from July to September this year would lower average gasoline spending per capita by between $4.79 and $14.31 over three months, depending on geographic location and modeling assumptions, and lower federal tax revenue by about $6 billion during that period.

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W2022-2 Fiscal and Generational Imbalances in the U.S. Federal Budget

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Authors: Agustin Diaz, Jagadeesh Gokhale, and Kent Smetters

Abstract

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The U.S. Fiscal Imbalance: June 2022

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The U.S. Fiscal Imbalance: June 2022

We estimate that the U.S. federal government faces a permanent fiscal imbalance equal to over 10 percent of all future GDP under current law where future federal spending outpaces tax and related receipts. Federal government debt will climb to 236 percent of GDP by 2050 and to over 800 percent of GDP by year 2095 (within 75 years).

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Effects of a State Gasoline Tax Holiday

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Effects of a State Gasoline Tax Holiday

We provide causal evidence that recent suspensions of state gasoline taxes in three states were mostly passed onto consumers at some point during the tax holiday in the form of lower gas prices: Maryland (72 percent of tax savings passed onto consumers), Georgia (58 percent to 65 percent) and Connecticut (71 percent to 87 percent). However, these price reductions were often not sustained during the entire holiday.

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Total Cost of Universal Pre-K, Including New Facilities

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Total Cost of Universal Pre-K, Including New Facilities

We estimate that each new preschooler for a universal pre-K program requires about $21,000 in new construction costs for facilities expansion. Including non-construction costs, a universal pre-K program for three- and four-year-olds will cost about $351 billion over the 10-year budget window. If made permanent after 10 years, this program will have essentially no impact on long-run GDP. A pre-K program for just four-year-olds reduces the 10-year cost to $196 billion and slightly increases long-run GDP, if that program is made permanent.

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Why Taxpayers Owed $500 Billion in Taxes When They Filed This Year

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Households owed more than $500 billion in taxes when they filed their returns this year, an increase of about $200 billion from immediately prior to the pandemic. The large tax liability owed at filing is mostly the result of a surge in capital gains and other income from financial assets in 2021.

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