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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.

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.

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.

The Expansion of the EITC Across States

An interactive map shows the history of state-level expansion of the Earned Income Tax Credit (EITC) across the United States. States with Democrat governments and Democrat-Republican mixed governments are more likely to expand state-level EITC programs.

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.

USAFacts 2019 Annual Report - Our nation, in numbers.

Forbes Contributor, Sheila Callahan, covered USAFacts release of its third annual report on May 2, 2019. The report highlighted recent shifts in U.S. demographics, noting that seniors, 65 years and older, are now 16 percent of the population.

Gig Economy Workers Face Tax Hurdles

Knowledge@Wharton invited Senior Economist at PWBM, Richard Prisinzano, on as a guest speaker on April 12, 2019, as well as Christine Speidel of Villanova University’s Federal Tax Clinic , to discuss discuss personal taxes, focusing on gig economy workers.

First Tax Day Under the Tax Cuts and Jobs Act

CNN reported on the first Tax Day under the Tax Cuts and Jobs Act. Lydia Depillis highlighted key economic effects of the 2017’s Tax Cuts and Jobs Act.

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.

Americans Startled by Impact of New Tax Law on Returns

Knowledge@Wharton invited Senior Economist at PWBM, Richard Prisinzano, on as a guest speaker on March 12, 2019, as well as the Center for Tax Law and Policy’s Michael Knoll, to discuss the impact of the TCJA’s tax changes on tax filers this year.

Annual Data is Better than Monthly for Understanding Tax Revenues

FactCheck.org’s Eugene Kiely explored how to think about the impact of 2017’s Tax Cuts and Jobs Act (TCJA) on tax revenue through official measures of tax receipts. Treasury reports show that in 2018 tax receipts were slightly lower than in 2017. However, tax receipts in February 2019 were 10% higher than in February 2018. Kiely asked PWBM’s Alexander Arnon what these figures mean for future tax receipts.

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.

Need Help Understanding the Impact of the New Tax Law on You? Check Out The Wall Street Journal Tax Calculator Powered By PWBM

On March 4, Dylan Moriarty and Richard Rubin presented the Wall Street Journal Tax Calculator, powered by Penn Wharton Budget Model, to help taxpayers understand tax law as they prepare their taxes. Taxpayers only need to enter a few key characteristics such as income and marital status to get an estimate of their tax liability from 2018 to 2027.

Decline in Housing-Driven Movement Ushers in Era of Less Migration

In a previous blog post, I considered how wage changes are related to the decision to move and the decline in household movement observed in the last two decades (see Figure 1 below). However, wage changes aren’t the only reason households choose to move. Changing motivations for moving are illustrative in examining the broader context of internal migration.

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.

Raising Taxes on the Rich Can Have Unintended Consequences

Penn Wharton Budget Model Senior Economist Richard Prisinzano discussed raising taxes on the wealthy with Alan Auerbach, Professor of Economics and Law at University of California Berkeley, and Knowledge@Wharton host Dan Loney. You can listen to the full discussion below.

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.

Furloughed Federal Workers Were Both Employed and Unemployed in January

Hundreds of thousands of federal government workers were recently on furlough due to a partial lapse in appropriations. Furloughed employees are barred from working and are not paid, but recent legislation guarantees that they will receive back pay “on the earliest date possible after the lapse ends.” The ambiguous status of federal workers on furlough--employed, but not working--will be reflected in next Friday’s jobs report. Furloughed federal workers will be counted as both employed and unemployed in January.

The Hidden Revenue Cost of a 70% Top Marginal Rate

In a recent interview on 60 Minutes, Congresswoman Alexandria Ocasio-Cortez presented the idea of instituting a 70 percent marginal tax rate on income over $10 million. Many commentators have weighed in on this proposal, both with op-eds supporting and criticizing this type of policy.

A conventional revenue estimate of the new tax rate would incorporate a traditional elasticity of taxable income. However, a second factor is very important for high-income taxpayers: a significant share of income above $10 million is earned by owners of pass-through businesses. We project that a significant amount of pass-through business owners will respond to this tax by reorganizing as C corporations to minimize their tax liability. This shift could cause the new 70% tax rate to lose as much as 43 percent of revenue that would otherwise be raised.

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.