We expand our previous analysis of President Trump’s proposed payroll tax holiday by considering two scenarios for how the employer side of the tax cut would be distributed: either to the full benefit of business owners and corporate equity holders (“profits rise”) or to the full benefit of workers (“wages rise”). When profits rise, the top 1 percent of families by income receive about 29 percent of the total payroll tax cut, compared to about 4 percent of the total cut when wages rise.
President Trump’s Payroll Tax Holiday: Budgetary, Distributional, and Economic Effects
In response to the economic effects of the coronavirus, President Trump has proposed a payroll tax holiday that would temporarily eliminate all Social Security and Medicare payroll taxes through December 31st, 2020. PWBM projects that this payroll tax holiday would cost $807 billion if the holiday were run from April 1 through December 31, 2020.
Households in the bottom 20 percent of the income distribution—those households with the highest willingness to spend their tax savings—would receive about 2 percent of the total tax cut and only a third of these households would see any tax savings due to low levels of taxable income. Tax savings would also accumulate slowly over time relative to direct government spending.
PWBM estimates that eliminating payroll taxes would have little net impact on the economy in the short run and would reduce the size of the economy by 0.1 percent in 2030 and 0.2 percent in 2050 due to additional debt.
The Updated Biden Tax Plan: Budgetary, Distributional, and Economic Effects
Presidential candidate Joe Biden’s updated tax plan includes a “donut hole” payroll tax and repeals major provisions in the Tax Cuts and Jobs Act for higher-income tax filers.
Relative to current law, PWBM projects that the updated Biden tax plan would raise between $3.1 trillion (including macroeconomic effects) and $3.7 trillion (not including macroeconomic effects) over fiscal years 2021-2030 while decreasing GDP by 0.6 percent in 2030 and 0.7 percent in 2050.
We project that 54 percent of the updated Biden tax plan falls on the top 0.1 percent of the income distribution, corresponding to an average tax increase of more than $1.3 million per taxpayer and an 18 percent reduction in their after-tax income. The top 1 percent of the income distribution pays about 80 percent of the tax change.
Comparing Progressive Tax Proposals
PWBM’s new interactive tax policy tool allows users to explore different ways of raising taxes on high-income households—a common theme in the policy platforms of several of the 2020 presidential candidates. Users can build their own tax and spending plan from among 18 specific policy options—with 575 possible combinations—to see the total budgetary and economic consequences of their selected policies.
Explaining “Unexplained Weakness” in Corporate Income Tax Receipts
Recent revisions to estimates of corporate profits may explain the unanswered question of why corporate income tax receipts have underperformed CBO estimates in recent years.
Senator Bernie Sanders' Wealth Tax: Budgetary and Economic Effects
Senator Bernie Sanders has proposed a graduated wealth tax starting at 1 percent of net worth above $32 million and climbing to 8 percent on net worth above $10 billion, which his presidential campaign has reported as raising $4.35 trillion over 10 years.
PWBM estimates that the proposal would raise about $3.3 trillion over fiscal years 2021-2030, not including macroeconomic effects. Including macroeconomic effects, PWBM estimates that the proposal would raise about $2.8 trillion over the same period.
PWBM projects that the proposal would reduce GDP by 1.1 percent in 2050. Average hourly wages in the economy in 2050, including wages earned by households not directly subject to the wealth tax, would fall by 1.0 percent due to the reduction in private capital
The Biden Tax Plan: Budgetary, Distributional, and Economic Effects
Former Vice President Joe Biden has proposed a plan to raise taxes on high-income households, which the Biden presidential campaign estimates would raise $3.2 trillion over 10 years. PWBM projects that this plan would raise between $2.3 trillion (including macroeconomic effects) and $2.6 trillion (not including macroeconomic effects) over fiscal years 2021-2030.
We project that more than half of the tax change falls on the top 0.1 percent of the income distribution, corresponding to an average tax increase of more than $1 million per taxpayer and a 14 percent reduction in their after-tax income. For all groups outside of the top 5 percent, average after-tax income decreases by less than 1 percent.
PWBM projects that this plan would have little impact on the aggregate economy, decreasing GDP by 0.1 percent by 2030 and increasing GDP by 0.1 percent by 2050.
Senator Bernie Sanders' Estate Tax: Budgetary Effects
Senator Bernie Sanders has proposed expanding the federal estate tax by lowering the exemption to $3.5 million for singles and $7 million for married couples as well as creating four new brackets with marginal rates up to 77 percent.
Not including macroeconomic effects, PWBM projects that this plan would raise about $267 billion in additional revenue over fiscal years 2020 - 2029.
PWBM projects that this plan would increase the percentage of decedents that would face any estate tax liability to about 0.5 percent in 2030.
Senator Michael Bennet’s “The Real Deal” Tax Plan: Budgetary Effects
We project that five major tax proposals included in Senator Michael Bennet’s “The Real Deal” would raise over $4.5 trillion dollars over the 10-year budget window (2020 - 2029) on a conventional basis before economic feedback effects.
Policy Options: Raising the Social Security Taxable Maximum
We estimate the budgetary, economic and distributional effects of raising the Social Security taxable maximum to $300,000 starting on January 1st, 2021. We project that it would raise $1.2 trillion of additional revenue on a conventional basis over the 10-year budget window and lower GDP 1.7 percent by 2050. Families in the top 10 percent of the income distribution would bear 93 percent of the overall burden of this tax increase.
Senator Elizabeth Warren’s Wealth Tax: Budgetary and Economic Effects
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.
Video Interview on PWBM's Analysis of Senator Elizabeth Warren’s Wealth Tax
Diane Lim, Senior Advisor at PWBM, and Richard Prisinzano, PWBM's Director of Policy Analysis, discuss our analysis of Senator Elizabeth Warren's wealth tax proposal released December 12, 2019.
To read the full analysis, please visit: whr.tn/PWBM-Warren-Wealth-Tax.
Video directed and edited by Kody Carmody.
Policy Options: Eliminate Itemized Deductions
We estimate the budgetary, economic and distributional effects of eliminating all Schedule-A itemized deductions starting on January 1st, 2021. We project that it would raise about $2.1 trillion of additional revenue on a conventional basis over the 10-year budget window and increase GDP by 2.3 percent by 2050. Families in the top 10 percent of the income distribution would bear 75 percent of the overall burden of this tax increase.
The Revenue-Maximizing Capital Gains Tax Rate: With and Without Stepped-up Basis at Death
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.
Policy Options: Increase Tax Rates on Capital Gains & Dividends
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.
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.
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.
Charitable Donations Fall After 2017 Tax Reform Meeting PWBM Expectations
Forbes’ senior contributor Kelly Phillips Erb wrote about the sharp fall in charitable contributions claimed by taxpayers in 2018. Recent data from the Internal Revenue Service (IRS) reveals that in 2018, charitable deductions claimed by taxpayers fell by $37 billion compared to 2017. Erb cites PWBM research, which projected a 5.1 percent reduction in total charitable giving due to the TCJA.
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.
Policymakers Cite PWBM Estimates About Indexing Capital Gains to Inflation
On July 12, 2019, Senator Sherrod Brown (D-OH) and Ron Wyden (D-OR) wrote a letter citing PWBM to the Steve Mnuchin, Secretary of the Treasury, to reject a plan to change tax law so that capital gains would be adjusted for inflation. The law change would cut taxes paid on the sale of assets such as stocks, real estate, and other investments. The