Must-Read: Jason Furman: @jasonfurman on Twitter: “THREAD. New results from Penn-Wharton Budget Model show wage effects of corporate tax changes…
…Under the default parameters cutting the corporate rate LOWERS wages. A well-designed plan a modest positive. You can try your own options….
I am looking at two plans. (1) Cut in the corporate rate to 20% without other changes, which is what CEA modeled. (2) Cut corp rate to 20%, has permanent expensing, disallows interest deductions, and broadens the base—House plan likely less pro-growth. For comparability to CEA’s “very conservative” $4,000 I am showing the %age change in labor income applied to 2016 household wages. I am showing all of the results for every combination of parameters in the PWBM—with a thicker line for their default assumptions.
Here is what it looks like for the 20% rate cut:
The default case is a wage decline but could be plus or minus ~$1,000. The +$1,000 case assumes the United States is a small open economy with complete capital mobility and no supernormal returns, FWIW….
With sensible/permanent design, modest wage increases in most scenarios. House plan likely much less well designed: maybe temporary/more limited expensing, maintain some interest deduction, & less base broadening….
Lazear, Kotlikoff, @MichaelRStrain, @aparnamath, @taxfoundation, Mankiw toy example all below CEA’s “very conservative” lower bound…. Debt weighs on the economy increasingly over time. Not sure what to make of jump in first yr, OLG models not designed to answer very SR Qs…. Medium/long results similar to past Treasury/JCT. These models capture complexity missing in simple finger exercises (eg, much I expensed already, EMTR up on those when statutory rate down)…