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Limit GILTI Benefits to Foreign-Derived Income (No Round-Tripping)

Under current law, shareholders in a Controlled Foreign Corporation (CFC) can deduct 50 percent of their Global Intangible Low-Taxed Income (GILTI) from taxable income. This deduction results in GILTI being taxed at a lower effective tax rate than other income. The reduced rate on GILTI means that multinationals serving the U.S. market may have an incentive to route their activities through a CFC, a practice referred to as “round-tripping.” Profits from sales to the U.S. by a CFC could be treated as GILTI and taxed at the lower rate. If those same profits were earned directly by the domestic corporation, they would be taxed at the full 21 percent statutory rate.

This proposal would limit the deduction to GILTI derived from serving foreign markets. GILTI derived from serving the U.S. market would not be eligible for the deduction and would be taxed at the statutory rate of 21 percent. Income is identified as either foreign-derived or U.S.-derived following the same definitions used under current law to determine Foreign-Derived Intangible Income (FDII): foreign-derived income is any income from the sale of property to a non-U.S. person for foreign use, or from the provision of services to persons outside the U.S.

Potential Harris Campaign Proposals for the Top Rate on Capital Gains

In recent campaign speeches, Vice President Kamala Harris has spoken about raising the top marginal rate on long-term capital gains. Official campaign sources have yet to release sufficient details about the proposal to model it fairly and effectively. However, reporting on the proposal suggests that the yet-to-be-detailed plan would add a new top rate for long-term capital gains, taxing them at 28% for filers with more than $1 million of income. Reporting also indicates that the Harris campaign is in favor of raising the net investment income tax (NIIT) from 3.8% to 5% for filers with more than $1 million of income, this has also not yet been independently confirmed by official campaign sources. Together, these proposals would amount to an all-in marginal tax rate of 33% on long-term capital gains for high income filers. Notably, this is below the all-in 44.6% top marginal rate for capital income in President Biden’s proposed 2025 budget.

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Updated Budgetary Cost for President Biden’s SAVE Plan

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In a July 2023 brief, we estimated that President Biden’s SAVE plan would incur a budgetary cost ranging from $391 to $559 billion over the next ten-year budget window, with a medium estimate of $475 billion. Tables 1a and 1b below present updates of our cost estimate, which includes a shift in the 10-year window by one year along with other changes in the economy over the past 13 months.

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Harris Campaign: Revenue Effects of Child Tax Credit, EITC, and ACA Premium Subsidy

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Vice President Harris recently announced a plan that would increase the Child Tax Credit in two ways, increase the “childless EITC,” and extend the 2021 expansion of Affordable Care Act premium subsidies. As shown in Table 1 below, we estimate a total cost of $2.1 trillion over 10 years. (PWBM will soon post updates of the Harris Campaign proposals. Check back soon.)

H.R. 7160, SALT Marriage Penalty Elimination Act: Revenue Effect

H.R. 7160, which was introduced on January 31, 2024, would raise the cap on the state and local tax deduction (SALT) from $10,000 to $20,000 for joint returns with AGI below $500,000 in 2023. After tax year 2023, the legislation would allow the SALT cap to revert to its current law value of $10,000 for joint filers until 2026. At that point, the cap will expire along with several other individual tax provisions from the 2017 Tax Cuts and Jobs Act.

As shown in Table 1, PWBM estimates that H.R. 7160 would reduce revenue by $12 billion over the 10-year budget window, with all of the revenue lost falling in fiscal year 2024.

Update: Budgetary Cost of Climate and energy provisions in the Inflation Reduction Act

The 2022 Inflation Reduction Act (IRA) contained a range of climate and energy provisions that PWBM previously estimated to cost $384.9 billion over 10 years (FY2022 – 2031). Since that estimate, newer implementation details have emerged, and the fiscal year calendar has moved to start at FY2023. Our updated estimate for over 10 years (FY2023 – 2032) for just the climate and energy provisions is now $1,045 billion. Table 1 decomposes these costs by specific area of climate and energy provisions.

Federal Student Loan Payment Pause: Budgetary Effect and Distributional Impact

In November, the U.S. Department of Education announced another extension of the pause on student loan repayment, interest, and collections (“Payment Pause”) until August 2023 at the latest.

Student loans have been in Payment Pause since March 2020. We calculate the conventional budgetary costs and distributional effects of the current-law Payment Pause between March 2020 and August 2023.

  • Current Law: All federal student loan borrowers are eligible. Total budgetary costs are estimated to be $210.0 billion with 23% of the benefit accruing to households in the bottom 50 percent of the income distribution.

We also present three alternative policies that would have instead limited the Payment Pause to lower-income households based on different means-tested rules. If implemented in March 2020 and continued until August 2023, we calculate the following results:

  • Alternative 1: Only Pell Grant recipients are eligible. Total budgetary costs are estimated to be $129.0 billion with 49% of the benefit accruing to households in the bottom 50 percent of the income distribution.

  • Alternative 2: Only households with income below 2.25 times the Federal Poverty Line are eligible.

    Total budgetary costs are estimated to be $60.1 billion with 89% of the benefit accruing to households in the bottom 50 percent of the income distribution.

  • Alternative 3: Only households with income below 1.5 times the Federal Poverty Line are eligible.

    Total budgetary costs are estimated to be $30.2 billion with 100% of the benefit accruing to households in the bottom 50 percent of the income distribution.

Family and Community Inflation Relief Act: Budgetary and Distributional Effects

On July 21st 2022, Senator Chuck Grassley (R-IA) introduced legislation (text, summary) that would index the value of certain tax benefits to inflation.

Draft Drug Pricing Reform: Preliminary Budgetary Effect

On July 6th, 2022, Senate Democrats introduced legislation (text) that addresses the cost of prescription drugs starting after enactment.

Middle-Class Savings and Investment Act: Budgetary and Distributional Effects

On June 14th 2022, Senator Chuck Grassley (R-IA) introduced legislation (text, summary) that would make five changes to the tax code starting in tax year 2022.

Modification of Limitation on Deduction for State and Local Taxes

Under current law, individuals can deduct up to $10,000 in state and local taxes (SALT) from taxable income through 2025, after which no limitation applies. The proposal would make two permanent changes to the deduction. First, it would set the maximum deduction value to $50,000. Second, it would introduce a phase-out range for the deduction: from $400,000 to $800,000 in AGI, the maximum deduction would decrease from $50,000 to $10,000.

We estimate the proposal would raise $355 billion in revenue over the 10-year budget window. In 2022, taxpayers in the top quintile of incomes would see 95 percent of the benefits from this policy. In 2026, when a deduction cap represents a tax increase relative to current law, nearly all of the additional tax burden would fall on the top 5 percent of taxpayers. After-tax incomes for the top 1 percent of taxpayers by income would decrease by more than 3 percent.

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H.R. 5376, Build Back Better Act: Budgetary Effects

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Last week, the House Committee on Rules issued updated reconciliation legislation as H.R. 5376, Build Back Better Act (available here). PWBM estimates that the proposal would cost $2.1 trillion, offset by $1.8 trillion in new revenues and other savings.

In order to provide additional context as part of the current reconciliation debate, PWBM has also estimated an illustrative scenario where all spending and revenue provisions in the Build Back Better Framework are permanent. These estimates are neither PWBM’s estimate of any current legislation nor PWBM’s estimates of the Build Back Better Framework released by the House of Representatives. PWBM estimates that making all provisions of the proposal permanent would cost an additional $2.5 trillion.

Modification of Limitation on Deduction for State and Local Taxes

Under current law, individuals can deduct up to $10,000 in state and local taxes (SALT) from taxable income through 2025, after which no limitation applies. The latest House bill under the Build Back Better framework would instead set the limitation to $80,000 from 2022 to 2030 and $10,000 in 2031.

We estimate this provision would raise $65 billion in revenue over the 10-year budget window, with net revenue loss concentrated before 2026. In 2022, taxpayers in the top 10 percent of incomes would see 88 percent of the benefits from this policy. In 2026, when an $80,000 represents a tax increase relative to current law, the provision would raise taxes for those in the top 5 percent only, with more than 99 percent of the increase falling on the top 1 percent of households.

We will continue to update this page with new SALT limitation provisions as they firm up in Congress.

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White House Build Back Better Framework, Illustrative Permanent Scenario

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In order to provide additional context as part of the current reconciliation debate, PWBM has estimated a scenario where all spending and revenue provisions in the Build Back Better Framework are permanent. The table below reflects this alternative. These estimates are neither PWBM’s estimate of any current legislation nor PWBM’s estimates of the Build Back Better Framework released by the White House.

White House Reconciliation Revenue Package

At 9AM this morning, the White House released a set of revenue options for budget reconciliation that the White House estimated to total $1,995 billion over 10 years (available here). PWBM's estimate of the same package is $1,527 billion, a difference of $468 billion.

Revenue Provisions in the House Ways and Means Reconciliation Bill: Budgetary Effects

PWBM projects that the revenue-raising provisions in the House Ways and Means Reconciliation Bill would raise roughly $2.4 trillion from 2022 to 2031. For more information, please see our full analysis.

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The Macroeconomic Effects of the August 2021 Senate Budget Reconciliation Package

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Drafting a budget from the August 2021 Senate reconciliation framework that satisfies the Senate rules of reconciliation (“Byrd Rule”) will require a decrease in new outlays or a large increase in revenues (or both) after the standard 10-year budget window. One such potential reduction in spending would allow the new non-healthcare related discretionary spending provisions to expire after 2031. With this reduced spending in 2031, we project that the reconciliation package will decrease GDP by 4.0 percent in 2050. Without this spending decrease (and where the Byrd Rule is not satisfied), we project a 4.8 percent fall in GDP in 2050. For more information, please see our full analysis.

Macroeconomic and Distributional Effects of the Scheduled October 2021 Expansion of the Supplemental Nutrition Assistance Program (SNAP)

The USDA re-evaluation of the Thrifty Food Plan increases the average SNAP benefit by $36.24 per person per month starting in October 2021. PWBM projects that the increase in SNAP spending lowers GDP by 0.2 percent by 2031. People who receive SNAP as well as older working age individuals are helped by policy change while young people with high incomes as well as rich retirees are harmed due to lower future wages and a fall in the return to capital. For more information, please see our full analysis.

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Economic Effects from Preschool and Childcare Programs

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By 2051, we find that a combination of targeted preschool and targeted childcare programs increase GDP by 0.1 percent relative to current policy, even if deficit financed. Universal versions of these programs are more costly and would instead reduce GDP by 0.2 percent by 2051. For more information, please see our full analysis.

PWBM Economic Outlook

The PWBM Economic Outlook projects that the pace of economic growth this year remains closely tied to the spread of the virus, evolution of variants, and distribution of vaccines, as reflected in our estimates for the year 2021 and part of 2022. Over time, we project that economic growth will stabilize to its pre-pandemic level with demographic changes playing a larger role.

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