policy

Repealing the Clean Energy Credits: A Macroeconomic Assessment of the GOP Proposal

Ignacio Gonzalez, Juan Montecino, and Vasudeva Ramaswamy

Institute for Macroeconomic & Policy Analysis, March 2024

Overview:

This brief provides an analysis of a Republican proposal to repeal the clean energy credits from the 2022 Inflation Reduction Act. The analysis finds that withdrawal of the clean energy credits would reduce GDP by approximately 2% in the long run from its anticipated level under current policy, while depressing employment and wages by approximately 0.5% and 1.5%, respectively. The proposal to repeal the clean energy credits seeks to reduce the government deficit. The analysis shows that an alternate policy of retaining the clean energy credits, while also raising the headline corporate tax rate to 28%, simultaneously raises government revenue, promotes economic growth, and alleviates wealth and income inequality.

Media coverage:

Jagoda, N. (March 11, 2024). “HILL TAX BRIEF: Details Due on Biden Budget Tax Hikes, IRS Funds”, Bloomberg.

Becker, B. (March 11, 2024). “What's in a Deadline?”, Politico.

Assessing the Effects of a Dividend and Capital Gains Tax Increase

Ignacio Gonzalez, Juan Montecino, and Vasudeva Ramaswamy

Institute for Macroeconomic & Policy Analysis, June 2024

Overview:

This brief provides a new analysis of the macroeconomic effects of raising taxes on dividend income and capital gains. Increasing dividend income and capital gains taxes from 20% to 39.6% for households earning over $1 million would raise government revenue by about 5% and GDP by about 1% in the long term. The proposed tax increase would increase income for lower- and middle-income households, while households at the top would see a significant decline in income. Because dividend income and capital gains are enjoyed largely by the wealthiest members of society, increasing taxes on income from these sources can play a crucial role in mitigating income and wealth inequality.

Media coverage:

Burns, T. (June 11, 2024). "Biden’s capital gains taxes would boost economic equality: Analysis", The Hill.

Becker, B. (June 10, 2024). "Will there be reaching across the aisle?", Politico.

Technical Note on Estimating the Overall Effect of Corporate Tax Reforms

Ignacio Gonzalez, Juan Montecino, and Vasudeva Ramaswamy

Institute for Macroeconomic & Policy Analysis, June 2024

Overview:

This technical note first describes key differences between estimating the impact of a change in tax policy at the firm (microeconomic) level and at the overall (macroeconomic) level. It then explains how macroeconomic models are used to infer the overall effects of policy reforms and how alternative assumptions—such as the presence of market power—influence these estimates.