Economic Growth

Payroll Tax Holiday: Budgetary, Economic, and Distributional Effects

We estimate that a one-year “payroll tax holiday” would cost the federal government between $141 and $151 billion over the standard budget window and increase GDP by 0.3 percent in 2020, with effects eventually turning slightly negative over time with higher deficits.

The Effect of the U.S. - China Trade War on the U.S. Economy

PWBM’s Efraim Berkovich, the Wharton School’s Marshall Meyer and Mary Lovely of the Maxwell School of Syracuse University discussed how the recently imposed tariffs on Chinese goods are raising prices for consumers, disrupting supply chains and weighing down economic growth in the long-run.

Are Tariffs a Drag? Trade War Pushes Interest Rates Up, Economy Down

We find that, excluding times of intervention by the Federal Reserve, interest rates on U.S. government debt are higher when levels of effective openness to foreign capital flows are lower, increasing the government’s borrowing costs.

The Trade War Trade-Off: Short Term Gains Then Long Term Losses

We project that even if the recently imposed tariffs are removed, GDP will be permanently smaller relative to having had no trade war. Extending the current trade war by several more years will lead to smaller losses in GDP in 2020 but will reduce GDP by more in the long run.

The Effects of Growing Federal Debt on the United States’ Economy

In today’s low interest rate environment, the cost of federal debt is lower than it used to be. However, long-run concerns loom. PWBM projections show that policies that reduce federal debt over time produce more economic growth than current policy.

The White House's Plan to Indexing Capital Gains to Inflation

Bloomberg’s Saleha Mohsin reports the Trump administration’s plan to index capital gains to inflation. Citing PWBM’s analysis, Mohsin highlights that indexing capital gains will disproportionately benefit those with high incomes. 

PWBM Projections In-Line with Official Government Estimates

In the Congressional Research Service’s report on the economic effects of the 2017 tax bill, Senior Specialist in Economic Policy Jane Gravelle and Specialist in Public Finance Donald Marples analyzed the effects of the Tax Cuts and Jobs Act (TCJA) on output and growth.

Federal Debt Still Matters

Lower interest rates since 2008 have reduced the cost of federal debt per dollar relative to the period before 2008. However, PWBM projects that the sheer size of federal debt will reach 190 percent of GDP by 2050 under present law. Even with low borrowing rates, stabilizing the debt-to-GDP level at its current value could increase GDP in 2050 by one to three times more than the projections we previously provided for the 2017 Tax Cuts and Jobs Act.

Tariff’s Projected to Raise Prices for Americans

The New York Times’ Jim Tankersley cites PWBM in an explanation of how Trump's tariffs erase the benefits of the current tax cuts. In particular, Tankersley finds that the benefits of Trump's tax cuts to the lower and middle classes will likely unwind as a result of his tariffs on goods from China, Mexico, and Europe.

Seven U.S. Economic Models Project Rapid Growth of Federal Debt

At the National Tax Association Spring Symposium, PWBM participated in a roundtable with other economic modelers. All modelers showed the results of cutting Social Security benefits by one-third in 2031. All models found that even with a benefit cut, by mid-century the U.S. still has a sizable debt-to-GDP ratio.

The $2 Trillion Congressional Democrat and White House Infrastructure Proposal

The $2 Trillion Congressional Democrat and White House Infrastructure Proposal
  • Due to various offsets, a $2 trillion federal investment would increase infrastructure spending across all levels of government increases between $440 billion and $2,033 billion---including the original $2 trillion---based on evidence of past experience.

  • If a gas tax were used to fully fund the $2 trillion investment, the gas tax would have to rise by $1.67 per gallon for 10 years, thereby increasing the current federal gas tax from $0.184 (18.4 cents) per gallon to $1.854 per gallon.

  • If fully deficit-financed, the $2 trillion infrastructure proposal lowers GDP between 0.1 and 0.5 by 2043, relative to current policy. If fully financed with user fees or higher gas taxes it typically boosts GDP, between -0.1 and 0.4 percent by 2043.

Tariff Increases Will Cost U.S. Households

In Trump’s tariffs are equivalent to one of the largest tax increases in decades CNBC’s Steve Liesman analyses data from the Treasury Department to find that tariffs proposed by President Trump will raise $72 billion in revenue. Previously, PWBM has estimated the economic costs of a trade war and that the impact of a trade war could wipe out economic gains from last year’s tax cuts.

Effects of the Closure Rule in PWBM’s Dynamic OLG Model

The closure rule is a necessary model assumption that prevents the debt-to-GDP ratio from exploding in the long-run. PWBM finds that each closure year assumption delivers similar results for macroeconomic variables over the next two decades.

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.

The Social Security 2100 Act: Effects on Social Security Finances and the Economy

The Social Security 2100 Act: Effects on Social Security Finances and the Economy
  • We project that The Social Security 2100 Act would nearly eliminate Social Security’s conventional long-range imbalance while reducing the program’s dynamic short-range imbalance.

  • The Act reduces annual shortfalls that would otherwise add to national deficits under current policy, but at the cost of new tax distortions. The two effects nearly cancel in the macroeconomy. We project that the Act decreases GDP by 0.7 percent by 2029 and decreases GDP by 2 percent by 2049.

  • Previously, PWBM showed that reforms that combined tax increases with progressive benefit reductions could boost GDP by over 5 percent by 2049.

Official BEA Measure of Real GDP Growth Meets PWBM’s Expectations

The Bureau of Economic Analysis (BEA) recently reported that real GDP grew 2.9 percent in 2018, up from 2.2 percent in 2017. This official government measure falls just below the range projected by PWBM in December of 2017 for the year 2018. At the end of December 2017, including the effects of the Tax Cuts and Jobs Act, PWBM estimated that real GDP would grow between 3.1 and 3.6 percent in 2018.

Options to Return Social Security to Financial Balance: The Impact on Economic Growth

Options to Return Social Security to Financial Balance: The Impact on Economic Growth
  • We examine a range of policy options that put Social Security on a sustainable path.

  • The analysis emphasizes the need for analyzing Social Security reforms using deep modeling that reveals important interactions that challenge conventional wisdom.

  • Tax increases generally produce more growth than “current policy” analysis where shortfalls are combined with the standard unified surplus measure. Additional debt can be combined with changes in benefits to produce even more economic growth. Reforms that combine tax increases and progressive benefit reductions produce the most growth.

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.

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 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.