Congressional budget office website11/7/2023 The impact on inflation is statistically indistinguishable from zero. That is a tiny fraction of its (single) standard deviation of variation. Statistically, even ignoring its composition, CBO’s estimated $21 billion in total deficit reduction amounts to less than 0.018% (2/100th of one percent) of cumulative projected GDP over the same years. Regardless, any change would be too small to be detectable in PCE inflation estimates that the Bureau of Economic Analysis reports to the first decimal place. The impact on inflation could be positive or negative under CBO’s estimate. Over the same period, however, payments to liquidity constrained households, including enhanced subsidies for the Affordable Care Act, exceed total deficit reduction, with the sum mostly financed by entities and households that are not liquidity constrained. Over the first five years (2022 – 2026), CBO estimates only $21 billion in accumulated deficit reduction. The extent to which taxpayers would use this discretion to avoid the minimum tax is highly uncertain and PWBM’s estimate of the impact may be larger. Because of data lags, the extent of such income shifting remains uncertain.ĭifferent views of the responsiveness of book income to the new tax: Corporations have significant discretion over their reported financial (“book”) income and hence, over the tax base for the new minimum tax. in recent years, which would reduce revenue from the minimum tax. The updated estimate almost fully closed the difference relative to PWBM’s December 2017 estimate.ĭifferent assumptions about recent and future corporate behavior, especially related to foreign income and profit shifting: PWBM estimates that major multinationals have shifted substantial amounts of income from low-tax foreign jurisdictions to the U.S. For example, in its April 2018 technical and economics update, the CBO concluded that the 2017 Tax Cuts and Jobs Act cost $433 billion more than originally estimated in December 2017 by JCT using CBO’s baseline. Technical and economic updates can have a material impact. Some possible explanations include:ĭifferences in economic assumptions: CBO’s estimates are based on an economic baseline from July 2021, which has not been updated to reflect recent economic conditions. 2 Due to a lack of information about the methods and assumptions underlying CBO’s estimate, PWBM cannot assess the reasons for this difference. PWBM expects this provision will raise $260 billion over 10 years, $53 billion less than CBO. Most of the $57 billion total difference is attributable to a single provision: a new corporate alternative minimum tax based on the book income of large corporations. Table 1 compares PWBM’s and CBO’s estimates of the cumulative deficit impact from 2022 to 2031 of major components of the IRA. Inflation Reduction Act: Comparing CBO and PWBM Estimates The impact on inflation could be positive or negative regardless, it would be too small to be detectable in PCE inflation estimates that the Bureau of Economic Analysis reports to the first decimal place. Over the same period, however, payments to liquidity constrained households, including Affordable Care Act subsidies, exceed total deficit reduction, with the sum mostly paid by entities and households that are not liquidity constrained. The impact on inflation is statistically indistinguishable from zero for either estimate. Other differences are related to PWBM’s estimates of the level and timing of financial (“book”) statement income, the reporting of which is more discretionary than taxable income under current law. CBO’s estimate, therefore, might change once they update their baselines to reflect more recent economic conditions. This difference is less than 0.1% (one tenth of one percent) of projected total revenue and is due to differences in the corporate minimum tax provision.ĬBO and PWBM use different economic baselines, with CBO’s baseline from July 2021. PWBM estimates a $248 billion reduction in accumulated deficits over the 10-year budget versus $305 billion for CBO. Summary: PWBM and CBO find an almost identical impact of the Inflation Reduction Act of 2022 (“IRA”) on the budget, with small differences stemming from the timing of the corporate minimum tax revenue.
0 Comments
Leave a Reply.AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |