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THREAD. New results from Penn-Wharton Budget Model show wage effects of corporate tax changes. budgetmodel.wharton.upenn.edu/tax-policy/
Under the default parameters cutting the corporate rate LOWERS wages. A well-designed plan a modest positive. You can try your own options.
Penn-Wharton Budget Model is the most sophisticated dynamic model outside of government, run by Kent Smetters (former Bush admin).
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.
Here is what it looks like assuming paid for 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.
We don’t know the House plan so none of this is modelling the House plan yet. Different models will give different answers.
But Lazear, Kotlikoff, @MichaelRStrain, @aparnamath, @taxfoundation, Mankiw toy example all below CEA’s “very conservative” lower bound.
@MichaelRStrain @aparnamath @taxfoundation Now PWBM confirms what I said in my initial reaction: key debate is sign not magnitude. Poorly designed corporate reform can LOWER wages.
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