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.
Social Security Projections: Competing Baselines
The Social Security Trust Fund is projected to be depleted between 2032 - 2035, depending on various assumptions.
Upon Trust Fund depletion, Social Security’s “payable” benefits--corresponding to a precise “current law” definition and based on annual payroll taxes collected in each year-- will equal between 70 - 75 percent of the “scheduled” benefits, based on the statutory formulas currently used to determine benefit levels (“current policy”).
Since Social Security’s financial projections typically extend beyond the depletion date, a modeling assumption must be made for benefit payments (“payable” or “scheduled,” “current law” or “current policy”) after Trust Fund depletion when projecting the impact of potential Social Security reforms on the economy. This decision plays a major role in projections of different potential reforms on the economy.
The Unintended Consequences of Linking Patient Satisfaction Scores to Physician Pay
Study finds that patient satisfaction scores are related to factors other than health. Linking these scores to physician pay could lead to lower compensation for young female doctors and incentivize doctors to prescribe controlled substances at higher rates.
The Social Security 2100 Act: Updated Analysis of Effects on Social Security Finances and the Economy
In this update to our analysis, we project that the Social Security 2100 Act would eliminate Social Security’s conventional long-range imbalance while reducing the program’s short-range imbalance on a dynamic basis.
The Act reduces annual shortfalls that would otherwise add to national deficits under current policy, but at the cost of new tax distortions. In the short run, the two effects nearly offset in the macroeconomy. We project that the Act decreases GDP by 0.7 percent by 2029 and decreases GDP by 2.7 percent by 2049.
PWBM previously analyzed the Social Security 2100 bill in March of this year. Since that time, PWBM has made enhancements to both our Social Security and our dynamic overlapping generations equilibrium models. These enhancements were made as part of our ongoing process to continually develop the most flexible and dependable model possible.
The Effects of Immigration Trends on the U.S.
Yahoo Finance editor Adriana Belmonte reports on the effects of increasing immigration on the American workforce. Belmonte cites PWBM’s interview on Knowledge@Wharton Business Radio SiriusXM 132, along with a policy brief written by Georgetown University professor Harry Holzer and the U.S. Census data, to illustrate the effects of increasing immigration on the U.S. economy. She refers to PWBM to demonstrate that increased immigration can lead to a rise in GDP.
W2019-2 Physician Characteristics and Treatment Modalities in Relation to Patient Satisfaction Scores in Outpatient Primary Care Practices
Authors: Efraim Berkovich and Alison J. Leff
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.
Program Choice and Financing Matter for Infrastructure Plans
PWBM’s Jon Huntley and Richard Prisinzano discussed how the financing of a federal infrastructure plan influences its effect on economic growth. Even though infrastructure investments increase productivity, plans that are deficit-financed can reduce GDP relative to current policy.
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 Social Security 2100 Act: Who Wins and Who Loses?
Using PWBM’s new dynamic distributional analysis, we find that the Social Security 2100 Act benefits wealthy, retired households at the expense of young, high-income households.
Dynamic Distributional Analysis
PWBM introduces a new measure of distribution that corrects numerous deficiencies in existing distributional measures that are commonly used to evaluate policy analysis.
Diane Lim appointed PWBM Senior Advisor
Excited to announce the appointment of Dr. Diane Lim as senior advisor to the Penn Wharton Budget Model.
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: Foreigner Ownership of American Business Actually Rises
We project that, although a trade war initially lowers the share of U.S. capital owned by foreigners, the trade war will actually increase the amount of American business capital owned by foreigners, by almost $1 trillion by 2028. Over time, the foreign owned share of business capital rises from about 29 percent today to over 34 percent in 2049.
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.