The CARES Act establishes a new, temporary charitable deduction (limited to $300) in tax year 2020 for taxpayers who claim the standard deduction. PWBM projects that this provision would cost about $2 billion and would have little effect on total donations. More than half (53 percent) of the benefit would accrue to families in the 60th to 90th percentiles of the income distribution.
Lasting Macroeconomic Impacts of the Coronavirus Crisis, Absent Fiscal Policy Response
We estimate the lasting macroeconomic effects of the anticipated recession due to coronavirus, as the initial shock leads to lower federal revenue and higher debt. If the economy recovers the year after a deep recession ("V shape"), we project that federal debt will be 3.2 percent higher and GDP will be 0.3 percent lower by 2030. If the recovery occurs over two additional years (“U shape”), federal debt rises by 5.9 percent and GDP falls by 0.6 percent lower by 2030. Barring future fiscal policy to reduce debt, so-called “potential GDP” will, therefore, be permanently lower due to the coronavirus.
Continuation of Low Oil Prices Would Hinder Investment and Growth in 2020
If oil prices remain at current levels through the end of 2020, we estimate that growth in business investment will be 1.9 percentage points lower and growth in GDP will be 0.25 percentage points lower in 2020.
The Demographics of the Coronavirus Crisis: Living Arrangements of “Leisure and Hospitality” Workers
In a previous post, we presented some of the demographic, income, and geographic characteristics of leisure and hospitality workers, who have been disproportionately harmed by the economic impact of the pandemic. We expand on that analysis here with other characteristics that might be important for policy, showing that leisure and hospitality workers tend to live in cities and are more likely to rent, rather than own their homes.
Options for Emergency Lump-Sum Cash Payments in Response to Coronavirus: Budgetary and Distributional Analysis
We present budgetary and distributional estimates for three potential versions of the lump-sum payment that President Trump announced earlier today. All three options increase the after-tax income of low income households the most. However, higher-income households have more children on average and would receive larger cash payments unless additional adjustments are made.
The Demographics of the Coronavirus Crisis: Impacts at the Front Line of the “Leisure and Hospitality” Sector
The economic downturn due to coronavirus has disproportionately harmed workers in the leisure and hospitality businesses, such as restaurants and bars—these workers tend to be less-educated and lower-income.
President Trump’s Payroll Tax Holiday: Alternative Distributional Analysis
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.
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.
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.
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.
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 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.
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.
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.