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.
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.
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.
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.
PWBM estimates that the White House’s Build Back Better reconciliation framework would increase spending by $1.87 trillion over the 10-year budget window and revenues by $1.56 trillion over the same period. By 2050, the proposal would increase federal debt by 2.0 percent and decrease GDP by 0.1 percent, relative to the current law baseline.
Using recently available data on learning loss from pandemic school closures, PWBM estimates that projected 2051 GDP is 1.4 percent lower than it would have been without the learning loss. Extending the 2021-22 school year for all public schools by one month would cost $78 billion and limit the reduction in 2051 GDP to 1.0 percent—a net present value gain in GDP of more than $1 trillion over the next three decades, equal to a $15.14 return for each $1 invested.
PWBM projects the House Ways and Means Committee proposal to temporarily extend the 2021 Child Tax Credit design would provide an average 2022 refundable tax cut of $2,785 to 78 percent of households with children at a budgetary cost of $545 billion over the 10-year budget window. Changes to phase-out and phase-in thresholds would reduce the budgetary cost but also reduce the size of the tax cuts.
Higher inflation reduces the real value of the government’s outstanding debt while increasing the tax burden on capital investment due to lack of inflation indexing. Increasing the current annual inflation target regime from 2 percent to 3 percent inflation reduces debt while lowering GDP.
PWBM estimates that tax policy changes in low-tax countries in response to the recent OECD global minimum tax deal could cost the U.S. as much as 50 percent of its minimum tax revenue.
PWBM projects that the long-run aggregate macroeconomic effects of Senator Joe Manchin's $1.5T reconciliation framework would be negligible. The economic benefits would largely accrue to younger, poorer households while the economic costs would fall mostly on richer households.
Working part-time or full-time while enrolled in college is not uncommon, but students who do so tend to fall behind their peers in terms of grades or spending more time in undergraduate study, even after controlling for other characteristics such as household resources.
We project that recent tax reforms proposed by the House Ways and Means Committee would increase the incentive of U.S. firms to shift intangible investments and profits to foreign countries with a tax rate below 20.7 percent.
The House Ways and Means Committee reforms proposed as part of budget reconciliation would increase the U.S. statutory corporate income tax rate to 26.5 percent, bringing the combined federal and state rate to 30.9 percent, making the U.S. rate the third highest among OECD members.
Measures of student ability typically used for college admissions implicitly reflect differences in family income across students. However, high school GPA reflects differences in income noticeably less than SAT and ACT scores. However, SAT and ACT scores do capture aspects of student ability missed by school-specific rankings alone.
The House Ways and Means Committee reforms proposed as part of budget reconciliation would more than triple the U.S. tax rate on multinationals’ foreign income and produce a higher rate than a proposed global agreement currently being negotiated through the OECD.
Even after accounting for differences in observed student ability, students coming from lower-income households are less likely to attend college. If they attend college, lower-income students are also more likely to attend a two-year community college.
Student performance in high school is a strong predictor of future success at college, including performance at two-year and four-year colleges, the likelihood of transferring from two-year colleges to four-year colleges, and eventually obtaining degrees.
PWBM projects that the revenue-raising provisions in the House Ways and Means Reconciliation Bill would raise roughly $2.4 trillion from 2022 to 2031.
Drafting a budget from the August 2021 Senate reconciliation framework that satisfies the Senate rules of reconciliation (“Byrd Rule”) will require a decrease in new outlays or a large increase in revenues (or both) after the standard 10-year budget window.
One such potential reduction in spending would allow the new non-healthcare related discretionary spending provisions to expire after 2031.
With this reduced spending in 2031, we project that the reconciliation package will decrease GDP by 4.0 percent in 2050. Without this spending decrease (and where the Byrd Rule is not satisfied), we project a 4.8 percent fall in GDP in 2050.
The USDA re-evaluation of the Thrifty Food Plan increases the average SNAP benefit by $36.24 per person per month starting in October 2021. PWBM projects that the increase in SNAP spending lowers GDP by 0.2 percent by 2031. People who receive SNAP as well as older working age individuals are helped by policy change while young people with high incomes as well as rich retirees are harmed due to lower future wages and a fall in the return to capital.
By 2051, we find that a combination of targeted preschool and targeted childcare programs increase GDP by 0.1 percent relative to current policy, even if deficit financed. Universal versions of these programs are more costly and would instead reduce GDP by 0.2 percent by 2051.
We analyze a combination of net revenue raisers consistent with the requirements released by the Senate Budget Committee on August 9th, 2021, for budget reconciliation.
About 30 percent of students who first attend two-year community college are from families with incomes above the median income for students attending four-year colleges. Moreover, upwards of one-fifth of top students from relatively small and large high schools first attend a two-year institution.
The bipartisan Senate infrastructure deal, endorsed by President Biden, authorizes about $548 billion in additional infrastructure investments, which we estimate is funded by $132 billion in new tax provisions and $351 billion in new deficits. We project that proposal would have no significant effect on GDP by end of the budget window (2031) or in the long run (2050).
