Supreme Court Tariff Ruling: IEEPA Revenue and Potential Refunds
We project that reversing the IEEPA tariffs will generate up to $175 billion in refunds. Unless replaced by another source, future tariff revenue collections will fall by half.
Xiaoyue Sun
At PWBM, Xiaoyue Sun works on corporate tax modeling and business investment analysis. Her work includes developing core components of PWBM’s corporate tax simulator, including models of depreciation, amortization, and net operating losses, as well as constructing firm- and asset-level investment profiles using IRS Statistics of Income, BEA fixed asset data, and financial statements. She collaborates closely with economists by translating tax policy into model logic and providing data processing and modeling infrastructure for revenue and distributional analysis. She also contributes to consumption and inflation analysis and supports trade policy research through data development and maintenance of PWBM’s tariff simulator. Xiaoyue holds an M.A. in International Economics and Finance and a B.A. in Economics and Computer Science from Brandeis University.
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After Ireland ended the Double Irish tax planning strategy in 2020, US firms with historical links to Ireland have shifted their intellectual property (IP) away from traditional tax havens to Ireland and the US to take advantage of tax incentives offered by both countries. This has coincided with a significant increase in Irish corporate tax revenue, particularly for less capital-intensive firms. Repatriation of foreign earnings to the United States has also increased, but fiscal benefits to the US have been offset by tax incentives passed under TCJA.
Three-Month Federal Gas Tax Holiday: Estimated Cost Reductions to Households
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.
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.
Did Wages Keep Up With Inflation in 2021?
We estimate that increases in wage earnings in 2021 offset the higher cost of living due to inflation for most households with incomes between $20,000 and $100,000. Higher-income households saw their earnings rise by more than their cost of living, while the lowest-income households (below $20,000) saw their earnings rise by only one third of their increase in cost of living.
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We estimate that inflation in 2021 will require the average U.S. household to spend around $3,500 more in 2021 to achieve the same level of consumption of goods and services as in recent previous years (2019 or 2020). Moreover, we estimate that lower-income households spend more of their budget on goods and services that have been more impacted by inflation. Lower-income households will have to spend about 7 percent more while higher-income households will have to spend about 6 percent more.
Profit Shifting and the Global Minimum Tax
We estimate that the recent OECD proposal for a global minimum tax would triple the effective U.S. tax rate on foreign income from 2 percentage points to 5.8 percentage points. The Biden administration’s proposed changes to the U.S. global minimum tax regime would instead raise the effective U.S. tax rate on foreign income to 12.4 percentage points.
Corporate Debt: Historical Perspective and Options for Reducing Interest Deductibility
While corporations are at historically high levels of debt relative to assets, leverage remains close to its historical average relative to firms’ market value and relative to interest expense as a fraction of cashflow. In PWBM’s dynamic firm model, reducing the deductibility of interest expenses by 10 percentage points decreases corporate output by 0.26 percent while decreasing corporate debt by 6.76 percent.
