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Brief, Tax Policy, Economic Growth
Penn Wharton Budget Model
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
Penn Wharton Budget Model
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
Penn Wharton Budget Model
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
Penn Wharton Budget Model
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
Penn Wharton Budget Model
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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Federal Debt Maturity in PWBM’s Dynamic OLG Model

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According to USAFacts, in 2015, the federal government paid more than $220 billion in interest, which is six percent of the federal budget and more than one percent of GDP. Thus, federal interest payments are a major component of the federal budget and significantly impact on the U.S. economy. The maturity structure of federal debt--the sizes of, due dates of, and interest rates on federal debt--affects federal interest payments. Longer-term debt issued at higher interest rates increases interest payments but “locks in” those payments for a long time. Shorter-term, lower-interest debt lowers interest payments but increases the impact of changes on interest rates on the federal budget as federal debt is refinanced.

Previously, we analyzed the maturity structure of federal debt back to 1953. Below, we describe how PWBM incorporates the maturity structure of federal debt into our dynamic overlapping-generations (OLG) model to make projections of interest paid on the federal debt.

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A Response to the White House’s Recent Critique of PWBM’s Tax Analysis

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This past Friday, Dr. Kevin Hassett, Chairman of the Council of Economic Advisers, critiqued Penn Wharton Budget Model’s analysis of the “Tax Cuts and Jobs Act” (TCJA), signed into law by President Trump in December 2017. Dr. Hassett delivered his remarks at the 2019 American Economic Association meeting. The AEA meeting is the largest annual event of academic and government economists, held this year in Atlanta, Georgia.

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More Gains to Moving for College Educated Workers

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Internal migration of working-age people in the United States has fallen by more than a third – from 18.9 percent in 1994 to 11.4 percent in 2018 (see Figure 1). This phenomenon has received significant scholarly attention – Cooke (2013) for example, attributes this decline to the rise of information and communication technologies. Alternatively, Molloy, Smith, and Wozniak (2011) point to broad macroeconomic shifts.

Reduced internal migration has important economic implications, particularly for labor markets. We find that wages grow faster for movers, especially for those with a college degree.

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Marriage Matters for the Gender Pay Gap Among Self-Employed

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The rise of the ‘gig economy’ means that understanding patterns of self-employment is more important than ever for designing tax benefits and subsidies that affect business activities. In fact, self-employment represents as many as 1 in 5 jobs.

We find that gender differences in self-employment patterns are mostly driven by the differences across marital status. Married women are more likely to be self-employed than single women. On average, self-employed married women work fewer hours than men and single women, regardless of employment type, and married women who are employer-employed. These differences carry over to earnings.

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Business Tax Comparison Calculator for Federal Taxes Tutorial

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A video explanation of how to use PWBM’s Business Tax Comparison Calculator for Federal Taxes.

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Business Provisions in New Representative Brady Bill Cost $4 Billion Over 10-Years

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On November 26th, the chairman of the House Ways and Means committee, Kevin Brady, released a new tax proposal. The bill can be treated as having five parts: Extenders, Disaster Relief, Retirement and Savings, Business Provisions and Technical Corrections to the Tax Code.

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LIFT Act Benefits Go To Middle Class

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Last month, Senator Kamala Harris (D-CA) introduced her tax plan, the LIFT the Middle Class Act. This bill aims to give monthly payments to Americans who qualify in the form of a tax credit. Penn Wharton Budget Model has analyzed the potential impact of the LIFT Act on the budget and effective marginal tax rates. We find the proposal would cost the federal government approximately $3.1 trillion over the ten-year budget window and an additional $3.7 trillion over the following decade.

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25 Cents Per Gallon Doubles Tax Revenue for Highways

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In contrast to earlier this year, November has seen consecutive days of falling oil prices. This drop has led to lower costs for consumers at the pump. With the annual growth rate of investment in public infrastructure slowing, some have suggested that now is the time to increase the federal gas tax. Recently, a former Secretary of Transportation urged the Administration to seize the opportunity to raise the gas tax. In the past, President Trump has endorsed an increase of 25 cents per gallon. The last increase in the federal gas tax was a quarter century ago in 1993 to 18.4 cents per gallon.

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Lower Corporate Debt Projected Under the Tax Cuts and Jobs Act

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In 2017, corporations had a lower cash to debt ratio than ever before. However, the Tax Cut and Jobs Act passed in December of 2017 reduced, but didn’t eliminate, the tax incentives for firms to take on debt. Therefore, PWBM projects that corporate debt will be seven to nine percent lower going forward.

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Analyzing the Budgetary and Incentive Effects of Senator Kamala Harris’s Proposed LIFT Act

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Senator Kamala Harris recently announced a proposal to establish a new refundable tax credit. This proposal (henceforth referred to as the “LIFT credit”) would be similar in design to the existing Earned Income Tax Credit (EITC), providing large payments -- up to $6,000 annually for married filers -- to low- and middle-income households. The LIFT credit would be available to households with either labor earnings or Pell grants, and would offer an option to receive benefit payments monthly rather than yearly. PWBM’s preliminary analysis suggests that on a conventional scoring basis, this policy would cost nearly $3.1 trillion over the ten year budget window (2019-2028), and would substantially change effective marginal tax rates for certain households.

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The Economic Boost from the Tax Bill is Temporary

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On October 11, 2018, the CNN show, “Quest Means Business” features a heated debate about the recent rate hikes by the Federal Reserve and President Trump’s disapproval of them, in which he cites recent economic growth. Opinion columnist for “The Washington Post”, Catherine Rampell, cites PWBM — alongside the Congressional Budget Office, International Monetary Fund, and Federal Reserve — as finding that the economic boost from the Tax Cuts and Jobs Act is temporary.

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As Predicted TCJA Isn’t Paying For Itself: Confirmed by Figures from the Treasury Department

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Jim Tankersley emphasized how recent tax reform will not pay for itself in his New York Times article, "No, Trump’s Tax Cut Isn’t Paying for Itself (at Least Not Yet)." Even though federal revenues increased marginally in 2018, it will not be enough to cover the tax cut. On October 15th, the Treasury Department announced that despite economic growth and low unemployment, the federal budget deficit grew by 17 percent.

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Tax Reform 2.0 Projected to Cost $614 Billion Over 10 Years

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In Yes, the Tax Cuts Have Cost the U.S. Treasury Money Bloomberg’s Justin Fox describes how tax revenue in 2018 is lower than tax revenue in 2017. Over the first six months of 2018, the cost of the Tax Cuts and Jobs Act was generally in line with PWBM’s December projections.

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Implementing a Partially Open Economy in the PWBM Dynamic OLG Model

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PWBM’s Dynamic OLG model simulates the partially-open U.S. economy in a way that is more consistent with economic behavior than standard “model blending” exercises. The difference between the two techniques becomes more pronounced over time due to the nation’s expanding debt path.

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Analysis of "Tax Reform 2.0"

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Analysis of "Tax Reform 2.0"

  • Recently, the House Ways and Means Committee introduced “Tax Reform 2.0” that includes new incentives to start up a business, enhanced savings accounts and makes permanent the individual tax cuts in the 2017 Tax Cuts and Jobs Act.

  • In April of 2018, PWBM anticipated and estimated the effects of the largest piece of this legislation that makes the TCJA individual tax cuts permanent.

  • This brief updates that analysis for the new 10-year budget window and incorporates the rest of the provisions in “Tax Reform 2.0.”

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Trading Tangible for Intangible: The Incentives Created by GILTI and FDII in the TCJA

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The recent Tax Cuts and Jobs Act (TCJA) contains two key international tax provisions: the tax on Global Intangible Low-Taxed Income (GILTI) and the reduced tax rate on Foreign Derived Intangible Income (FDII). These provisions were designed to encourage United States-based multinationals to locate intangible intellectual property in the U.S. rather than in foreign jurisdictions. However, an aspect that is overlooked is that these same provisions also create incentives for U.S. firms to acquire tangible assets abroad and to sell tangible assets in the U.S. Future monitoring of these activities is required to assess the extent to which U.S. multinationals will shift production overseas in response to the incentives created by GILTI and FDII.

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Estimates of TCJA Repatriation of Foreign Earnings on Investment and GDP

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An important part of the discussion surrounding the passage of the Tax Cuts and Jobs Act (TCJA) was the accumulation of untaxed profits in U.S. corporations’ foreign subsidiaries, which were estimated to be as high as $2.8 trillion in 2017. Before 2018, these earnings were generally not subject to U.S. taxes unless they were paid to the U.S. parent corporation as a dividend (“repatriated”), leading many companies to accumulate profits abroad. The TCJA introduced a deemed repatriation provision, which provides a tax “holiday” for foreign earnings by taxing them at a reduced rate of 15.5 percent on cash and eight percent on other assets. Speaker Paul Ryan argued that the TCJA’s tax holiday for foreign dividend payments directly affects the economy because, “money will come back and that will help economic growth.” Indeed, many companies have already committed to significant repatriation amounts, with Apple notably pledging to pay $38 billion in tax on repatriated income.

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For Every Gain, a Loss: New IRS Regulations Reduce the Cost of Tax Cuts For Pass-Through Business Owners

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The passage of the Tax Cuts and Jobs Act brought with it a new 20 percent deduction for income earned from a pass-through business. The IRS recently released proposed regulations that clarify some of the issues associated with the new deduction. Our model suggests that depending on the effectiveness of the regulations, the overall cost of the deduction could be reduced between $54 and $65 billion over the 10-year budget window.

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No Bang for the Bucks - Indexing Capital Gains Doesn’t Lead to Economic Growth

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In this blog entry, we use PWBM’s OLG model to explore the dynamic effects of capital gains indexation, which includes the impact of the proposed policy change on economic growth. We project that this policy change will produce no meaningful economic feedback effect over the next decade.

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When Debt Rises, the Treasury Rebalances to Long-Term Securities

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To finance government spending above tax revenues, the federal government issues debt. According to USAFacts, in 2015 the federal government paid more than $220 billion in interest on this debt. Moreover, interest on the federal debt is growing larger, and it is becoming an increasingly important part of PWBM’s long-term budget projections. To make more accurate projections of interest paid on the federal debt, PWBM will begin projecting the maturity structure of federal debt.

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