“Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
“…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
“…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
“…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
“Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
“A full-throated defense of economic dynamism.” - The Wall Street Journal
“There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
AI Summary.The authors estimate that billionaire departures tied to a proposed California wealth tax would cut state income, sales, and other tax collections by $3.53bn–$4.49bn a year, with a $2.77bn lower bound based only on the nine publicly identified emigres. The analysis classifies 212 California billionaires by wealth source, assuming departures retain different shares of California-source income.
Jared WalczakCalifornia Tax Foundation
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Walczak estimates the 2026 California Billionaire Tax Act would reduce annual state tax revenues by ~$3.53B to $4.49B due to billionaire departures and associated spillovers. The NPV of these ongoing losses would be several times the wealth tax revenue.
How much state tax revenue would billionaire departures cost annually?
Core argument: The authors estimate the 2026 California Billionaire Tax Act would cut state income, sales, and other tax collections by $3.53 billion to $4.49 billion per year under their primary billionaire-departure scenarios.
This paper estimates ongoing annual reductions in state tax revenue under scenarios based on announced and anticipated billionaire departures. The analysis considers direct impacts on individual income and, to a much lesser extent, sales tax collections, along with spillover effects. We identify 212 California billionaires using the Forbes billionaire list and classify each based on whether their wealth is primarily held in publicly traded equity, a privately held operating business, financial fund management, or a diversified mix of sources. We use classification-specific assumptions of income loss subject to a given billionaire’s departure, assuming that only 5% of public founders’ income will remain California source after a departure, compared to 55 percent for private operating business owners, 35% for financial management, and 15% for diversified wealth. Under our primary scenarios, the wealth tax yields ongoing reductions of $3.53 billion to $4.49 billion per year in income, sales, and other tax collections. Calculations based exclusively on the nine publicly identified billionaire emigres yield $2.77 billion in recurring revenue loss and can be regarded as a lower bound. Actual out-migration almost certainly already exceeds that which has been publicly reported, and continued departures should be expected should the initiative advance.
Takeaways by Macro Roundup® AI
The authors estimate the 2026 California Billionaire Tax Act would cut state income, sales, and other tax collections by $3.53 billion to $4.49 billion per year under their primary billionaire-departure scenarios.
Limiting the calculation to the nine publicly identified billionaire emigres yields $2.77 billion in recurring revenue loss, which the authors regard as a lower bound.
The analysis classifies 212 California billionaires from the Forbes billionaire list and assumes post-departure California-source income of 5% for public founders, 55% for private operating business owners, 35% for financial management, and 15% for diversified wealth.
What’s Missing in the Fed’s Data about Ultrarich Portfolios— The Federal Reserve's Distribution of Financial Accounts defines "private business" narrowly as proprietor's equity in noncorporate, nonfinancial businesses, excluding S-corporations, other private corporations, and private equity and hedge fund partnerships, which are lumped into "corporate equities." The Survey of Consumer Finances instead shows private business is roughly 45–50% of top 0.1% wealth.
Ed Conard Debates Furman On “The Expected Value of Risk Taking”— A debate on U.S. fiscal policy argues that spending increases, rather than the tax increases needed to fund them, slow growth, and that higher taxes would reduce the expected value of America's innovative risk-taking. The argument holds that cutting debt below 100% of GDP is critical.
AI Summary.Internal Revenue Service data show residents leaving Massachusetts took a net $4.2bn in adjusted gross income with them, an 8% year-over-year increase, in the first year of a 4% surtax on incomes above $1m, though the number of departing taxpayers slowed. Net outflows predate the surtax, and surtax collections have risen every year.
Greg RyanBloomberg
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Net outflows of adjusted gross income from Massachusetts increased 8% y/y in 2023 to $4.2B, after a 4% surtax on income over $1mm took effect. Top earners leaving the state were responsible for 70% of the outflow.
Does a millionaire surtax accelerate income leaving the state?
Core argument: Residents leaving Massachusetts took a net $4.2 billion in adjusted gross income with them in 2023, an 8% year-over-year increase and one of the largest totals in the country, according to Internal Revenue Service data.
Residents exiting Massachusetts took a net of $4.2 billion in adjusted gross income with them in 2023, one of the largest totals in the country, after a tax on millionaires took effect. The amount was an 8% year-over-year increase, according to Internal Revenue Service data, even as the total number of taxpayers leaving the state slowed. This was the first year that residents were subject to a 4% surtax on incomes over $1 million after voters approved the levy in 2022 to fund schools and transportation. Despite the tax’s implementation, the number of residents moving out of Massachusetts who reported income of $200,000 or more — the top bracket tracked in the IRS data — fell year-over-year. Net outflows from Massachusetts long predate the millionaires tax, especially to Florida and New Hampshire, its northern neighbor, which has no tax on wages or capital gains. Total lost income was also higher in 2021 than 2023. The state’s millionaires-tax collections have increased every year since 2023 and so far in fiscal 2026 have jumped 19% year-over-year to $1.3 billion.
Takeaways by Macro Roundup® AI
Residents leaving Massachusetts took a net $4.2 billion in adjusted gross income with them in 2023, an 8% year-over-year increase and one of the largest totals in the country, according to Internal Revenue Service data.
The number of Massachusetts out-migrants reporting income of $200,000 or more, the top bracket tracked in IRS data, fell year-over-year in 2023, the first year of the voter-approved 4% surtax on incomes above $1 million.
Massachusetts millionaires-tax collections have risen every year since 2023 and are up 19% year-over-year to $1.3 billion so far in fiscal 2026, while net outflows to Florida and New Hampshire predate the surtax.
Behavioral Responses to State Income Taxation of High Earners: Evidence from California— A California ballot measure raising top marginal income tax rates by up to 3 percentage points prompted an additional 0.8% of the affected tax base to leave the state, with an estimated income elasticity of 2.5–3.2 for high earners who stayed. The authors estimate these responses eroded 45.2% of windfall revenues within one year and 60.9% within two.
The Robin Hood State Is Coming For The Rich— In the US, increased redistribution has offset rising pre-tax inequality: Congressional Budget Office data show inequality of taxable income near record highs while inequality after taxes and transfers was lower than in several earlier years and only slightly above 1986. The top 1% of earners paid 40% of income tax in 2022, up from 33% in 2001.
AI Summary.The authors estimate that 94% of U.S. tariff costs were borne domestically over the first eight months of 2025, with a 10% tariff associated with only a 0.6 percentage point decline in foreign export prices. Pass-through into U.S. import prices later declined to 86%, shifting more of the burden to foreign exporters.
Mary Amiti, Chris Flanagan, Sebastian Heise, and David WeinsteinFederal Reserve Bank of New York
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A FRBNY analysis finds that ~90% of tariffs’ economic burden was borne by American firms and consumers in the first 8 months of 2025. Between January and November, however, that incidence declined 8pp as firms reorganised supply chains.
Are U.S. buyers bearing most of the cost of tariffs?
Core argument: U.S. buyers bore 94% of the 2025 tariff incidence during the first eight months of the year, with a 10% tariff associated with only a 0.6 percentage point decline in foreign export prices.
94% of the tariff incidence was borne by the U.S. in the first eight months of 2025. This result means that a 10% tariff caused only a 0.6 percentage point decline in foreign export prices. The tariff pass-through into import prices has declined in the latter part of the year. That is, a larger share of the tariff incidence was borne by foreign exporters by the end of the year. In November, a 10% tariff was associated with a 1.4 percent decline in foreign export prices, suggesting an 86% pass-through to U.S. import prices. Given that the average tariff in December was 13% our results imply that U.S. import prices for goods subject to the average tariff increased by 11% (13 times 0.86) more than those for goods not subject to tariffs. These higher import prices caused firms to reorganize supply chains.
Takeaways by Macro Roundup® AI
U.S. buyers bore 94% of the 2025 tariff incidence during the first eight months of the year, with a 10% tariff associated with only a 0.6 percentage point decline in foreign export prices.
Tariff pass-through into U.S. import prices declined later in 2025: in November a 10% tariff was associated with a 1.4% decline in foreign export prices, suggesting 86% pass-through.
With the average tariff at 13% in December, the results imply U.S. import prices for tariffed goods rose 11% more than for untariffed goods, prices that led firms to reorganize supply chains.
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A Note On Tariffs From The Real World— A large retailer reports that pre-tariff inventory is still being sold, so tariff costs will show up as margin hits later, and that prices must eventually rise roughly 10–15% to cover them. The retailer says its sector's tariff rate went from about 12% to about 33%, and that retailers are holding prices through the holiday season before raising them.
U.S. to Cut Tariffs on Bananas, Coffee and Other Goods From Four Countries— The U.S. announced joint statements with four Latin American countries under which it would reduce tariffs on a range of goods not produced domestically, including bananas and coffee from Ecuador and beef from Argentina. Officials said no government-sponsored beef shipments are planned, but tariff cuts on beef are expected.
Tariffs Are Generating Meaningful New Revenue— New U.S. tariffs are estimated to generate $1.3tn in net new revenue through the end of the current presidential term and $2.8tn through 2034 before economic effects, about $600bn more than previously enacted tariffs. If a court ruling striking down some tariffs is upheld, the remainder could raise as little as $800bn through 2034.
AI Summary.New York City has the highest combined city-state personal tax rate in the US and the highest all-in corporate income tax rate at 17.4%, and the highest industrial, retail and multifamily property taxes per square foot among ten major cities. New York State ranks first in tax collections per capita.
Michael CembalestJ.P. Morgan
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At ~15%, NYC has the highest combined city-state personal tax rate in the US, and the top marginal corporate income tax rate at 17.4%. The city also has the highest industrial, retail and multifamily property taxes per square foot of 10 major cities.
Does New York City impose the highest taxes among major US cities?
Core argument: New York City carries the highest all-in corporate income tax rate in the US at 17.4%, combining state and city taxes plus the MTA surcharge, along with the highest combined city-state personal tax rate.
NYC has the highest combined city-state personal tax rate in the US and the highest all-in corporate income tax rate at 17.4% (state plus city plus MTA surcharge). According to the [Citizens Budget Commission], New York State is the highest tax jurisdiction in the US based on tax collections per capita and #2 on tax collections per $1,000 of personal income. NYC has the highest industrial, retail and multifamily property taxes per square foot of ten major cities.
Takeaways by Macro Roundup® AI
New York City carries the highest all-in corporate income tax rate in the US at 17.4%, combining state and city taxes plus the MTA surcharge, along with the highest combined city-state personal tax rate.
The Citizens Budget Commission ranks New York State as the highest tax jurisdiction in the US by tax collections per capita and #2 by tax collections per $1,000 of personal income.
New York City has the highest industrial, retail, and multifamily property taxes per square foot among ten major cities.
Related Articles:
As New Jobs In Finance Dry Up, New York City’s Fiscal Model Is Wilting— New York state's share of US taxpayers reporting over $1m in income fell from 12.7% in 2010 to 8.7% in 2022, and the Citizens Budget Commission estimates state and city income tax receipts from that group would have been $13bn higher had the share held. Job growth has concentrated in lower-paid health care and social assistance.
The Stationary Bandits of New York City— New York City's construction costs exceed international benchmarks: Paris installs metro platform edge doors for about €3.7m per station while the Metropolitan Transportation Authority says it needs $55m per station. The author argues stringent crane operator licensing and sidewalk shed regulations protect a small number of unionized contractors from competition.
Behavioral Responses to State Income Taxation of High Earners: Evidence from California— A California ballot measure raising top marginal income tax rates by up to 3 percentage points prompted an additional 0.8% of the affected tax base to leave the state, with an estimated income elasticity of 2.5–3.2 for high earners who stayed. The authors estimate these responses eroded 45.2% of windfall revenues within one year and 60.9% within two.
AI Summary.Laffer curves estimated with a realistic tax base are flatter than those using simplified broad or narrow bases, implying smaller revenue gains from raising top tax rates and a lower revenue-maximizing top rate. The authors estimate federal individual income tax revenue peaks at a 47% top rate, yielding only 1.3% more revenue, about 0.1% of GDP.
Rachel Moore, Brandon Pecoraro and David SplinterJoint Committee on Taxation
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JCT calculations suggest that properly constructed individual income tax Laffer curves are flat over wide ranges. Modeling shifting across business types and interactions btw various taxes under 2022 law, they find revenue is ~ constant for top rates btw 37% and 55%.
How much revenue would raising top tax rates actually generate?
Core argument: A Laffer curve estimated with a tax calculator and the true tax base peaks at a top rate of 47%, yielding only 1.3% more federal individual income tax revenue, about 0.1% of GDP.
Laffer curves estimated with more realistic taxes are flatter, suggesting less potential revenue gains from top rate increases and a lower revenue-maximizing top rate. Standard simplifications miss meaningful behavioral margins such as shifting across tax bases and sectors. Interactions between federal individual income taxes and other taxes produce even flatter Laffer curves and smaller revenue gains from higher top rates. Panel A of Figure 2 shows how federal individual income tax revenues change as the top tax rate varies along the x-axis. With a broad base, total income enters the tax function as a single base, applying the top rate to all income even though much of it qualifies for lower preferential tax rates. With a narrow base, only wage income enters the tax function, which fails to apply the top tax rate to any capital income. The true tax base lies between the narrow and the broad base. The Laffer curve estimated using the tax calculator and true base reaches a more modest peak (only 1.3% more tax revenue) at a top tax rate of 47%. Notably, this additional federal income tax revenue is only about 0.1% of GDP. Relative to both the narrow and broad bases, the true base implies smaller potential revenue gains and a lower revenue-maximizing top tax rate.
Takeaways by Macro Roundup® AI
A Laffer curve estimated with a tax calculator and the true tax base peaks at a top rate of 47%, yielding only 1.3% more federal individual income tax revenue, about 0.1% of GDP.
The true tax base lies between a narrow base covering only wage income and a broad base applying the top rate to all income, and it implies smaller potential revenue gains and a lower revenue-maximizing top rate than either.
Standard simplifications omit behavioral margins such as shifting across tax bases and sectors, and interactions between federal individual income taxes and other taxes produce flatter Laffer curves with smaller revenue gains from higher top rates.
Related Articles:
Taxing Top Wealth: Migration Responses and Their Aggregate Economic Implications— Swedish data show that when a wealth-taxed entrepreneur emigrates, employment at their businesses falls 33%, value-added 34%, tax payments 50%, and investment 21%, but 60% of closed firms are absorbed by other domestic companies. The authors estimate aggregate effects on employment and investment are small.
California’s Billionaire Tax Plan Will Backfire— California now draws more than 60% of its revenue from personal income taxes, compared with about 11% in the early 1950s when sales and use taxes supplied nearly 60%. The state's top 1% of taxpayers — roughly 170,000 filers — paid about 40% of personal income tax revenue, payments that depend heavily on unpredictable capital gains.
Ed Conard Debates Furman On “The Expected Value of Risk Taking”— A debate on U.S. fiscal policy argues that spending increases, rather than the tax increases needed to fund them, slow growth, and that higher taxes would reduce the expected value of America's innovative risk-taking. The argument holds that cutting debt below 100% of GDP is critical.
AI Summary.California now draws more than 60% of its revenue from personal income taxes, compared with about 11% in the early 1950s when sales and use taxes supplied nearly 60%. The state's top 1% of taxpayers — roughly 170,000 filers — paid about 40% of personal income tax revenue, payments that depend heavily on unpredictable capital gains.
Michael MoritzFinancial Times
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In 1950, sales taxes accounted for ~60% of California’s revenue, and personal income taxes accounted for 11%. In recent years, the personal income tax share has risen to ~60%, with the top 1% of California taxpayers responsible for ~40% of the revenue.
How dependent is state revenue on a small group of taxpayers?
Core argument: In 2022, California's top 1% of taxpayers — about 170,000 payers — paid roughly 40% of the state's personal income tax revenues, payments that are highly contingent on unpredictable capital gains.
In 1957, Fairchild Semiconductor, the company that spawned Silicon Valley, was formed by eight men — only one of whom was born in California. At the start of that decade the state’s population was about 10.5mn and only about 11% of its revenue of $1.1bn came from personal income taxes. The sales and use tax (levied on products not services) accounted for almost 60%. Today, California’s population is about 39.5mn while its budget is about $320bn (not including the $174bn the state receives from Washington for social welfare programmes). Since 1990, the budget has grown at an average rate of 6% a year. Compared to the 1950s, the source of the state’s revenue has entirely flipped. In recent years personal income taxes have contributed more than 60% of the total. This revenue rests on a foundation of jelly. In 2022, the top 1% of California taxpayers — just 170,000 payers — coughed up about 40% of all the state’s personal income tax revenues. Worse still, these payments are highly contingent on unpredictable capital gains.
Takeaways by Macro Roundup® AI
In 2022, California's top 1% of taxpayers — about 170,000 payers — paid roughly 40% of the state's personal income tax revenues, payments that are highly contingent on unpredictable capital gains.
California's revenue mix has flipped since the 1950s, when personal income taxes supplied about 11% of $1.1bn in revenue and sales and use taxes nearly 60%; in recent years personal income taxes contributed more than 60%.
California's budget has grown at an average 6% a year since 1990 to about $320bn, excluding $174bn received from Washington for social welfare programmes, with population up from about 10.5mn in the early 1950s to about 39.5mn.
Related Articles:
Ed Conard Debates Furman On “The Expected Value of Risk Taking”— A debate on U.S. fiscal policy argues that spending increases, rather than the tax increases needed to fund them, slow growth, and that higher taxes would reduce the expected value of America's innovative risk-taking. The argument holds that cutting debt below 100% of GDP is critical.
California Keeps Losing Tech Jobs— California's share of US tech jobs has fallen from nearly 19% before the pandemic to nearly 16%, including a further 0.4% decline over the past year. The remaining jobs skew high-paying: California's share of information-sector compensation is slightly above its pre-pandemic peak, with nearly a third of all tech wages and benefits going to state residents.
Behavioral Responses to State Income Taxation of High Earners: Evidence from California— A California ballot measure raising top marginal income tax rates by up to 3 percentage points prompted an additional 0.8% of the affected tax base to leave the state, with an estimated income elasticity of 2.5–3.2 for high earners who stayed. The authors estimate these responses eroded 45.2% of windfall revenues within one year and 60.9% within two.
AI Summary.The Congressional Budget Office now projects tariffs enacted this year will reduce debt including interest by $3.0tn through 2035, down from $4.0tn, reflecting policy changes and revised assumptions about duty-free imports and costs absorbed by foreign exporters. If courts strike down the emergency-powers tariffs, the debt reduction would fall to roughly $0.9tn.
Marc GoldweinCommittee for a Responsible Federal Budget
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The CBO has reduced its forecast of tariff revenue through FY 2035 by 25% to $3T. 2/3 of the downward revision is due to methodological refinements such as an increased estimate of the share of imports from Canada and Mexico covered by the USMCA.
How much debt reduction will this year's tariffs actually deliver?
Core argument: CBO projects tariffs enacted this year will reduce debt, including interest, by $3.0 trillion through FY2035, down from $4.0 trillion in August, with revenue excluding dynamic effects falling from $3.3 trillion to $2.5 trillion.
Updated projections from the CBO show that tariffs enacted this year will reduce debt (including interest) by $3.0 trillion through Fiscal Year (FY) 2035, down from the $4.0 trillion projected in August. Excluding dynamic effects, CBO now projects $2.5 trillion of revenue as opposed to $3.3 trillion – with 1/3 of the difference driven by announced policy changes and the other 2/3 due to an increased estimate of the share of imports that can access lower or zero duty rates under the United States-Mexico-Canada Agreement (USMCA), reduced estimates of the value of steel and aluminum in goods subject to tariffs on derivative products, and [a rise] in the projected share of tariff costs absorbed by foreign exporters from 0% to 5% of the increase in the tariff rate. If the Supreme Court upholds the ruling that tariffs enacted under the International Emergency Economic Powers Act (IEEPA) are illegal, then the primary deficit impact would likely drop to around $0.7 trillion, or roughly $0.9 trillion after interest. In light of CBO’s updated tariff estimates and the incorporation of actual 2025 budget data from Treasury, we now project debt to rise to 122% of GDP by 2035, roughly 2% of GDP higher than the CRFB Adjusted August Baseline and 4% of GDP higher than CBO’s January 2025 baseline. If the Supreme Court rules IEEPA tariffs illegal, debt would rise further to 127% of GDP.
Takeaways by Macro Roundup® AI
CBO projects tariffs enacted this year will reduce debt, including interest, by $3.0 trillion through FY2035, down from $4.0 trillion in August, with revenue excluding dynamic effects falling from $3.3 trillion to $2.5 trillion.
CBO attributes one-third of the revenue reduction to announced policy changes and two-thirds to a higher estimated share of imports accessing lower USMCA duty rates, reduced steel and aluminum value estimates, and a rise from 0% to 5% in tariff costs absorbed by foreign exporters.
CRFB projects debt rising to 122% of GDP by 2035, roughly 4% of GDP above CBO's January 2025 baseline, and to 127% if the Supreme Court rules IEEPA tariffs illegal, which would cut the primary deficit impact to about $0.7 trillion.
Related Articles:
Tariffs Are Generating Meaningful New Revenue— New U.S. tariffs are estimated to generate $1.3tn in net new revenue through the end of the current presidential term and $2.8tn through 2034 before economic effects, about $600bn more than previously enacted tariffs. If a court ruling striking down some tariffs is upheld, the remainder could raise as little as $800bn through 2034.
Trump’s Tariffs Are a Massive Money Grab. That’s Why They Are in Trouble— The US administration's own budget office estimates the tariffs amount to $3.9tn over a decade, the largest tax increase since 1982. Though the Supreme Court tends to read presidential authority over foreign policy broadly, allowing any president to impose such a tax without input from Congress may exceed its limits.
The U.S. Is Tiptoeing Away From Many of Trump’s Signature Tariffs— The US has exempted dozens of products from its reciprocal tariffs and offered to carve out hundreds more, from farm products to airplane parts, for countries that strike trade deals. The administration is simultaneously expanding tariffs grounded in Section 232 of the Trade Expansion Act, covering metals, autos, heavy trucks, pharmaceuticals and furniture.
AI Summary.A proposal would replace the 7.65% employer-side payroll tax with a flat Employer Compensation Tax levied on each firm's total annual compensation costs, leaving worker-side taxes and benefit formulas unchanged. The Urban Institute estimates such a tax could close two-thirds of Social Security's funding gap and half of Medicare's, but would not restore full solvency on its own.
Marc GoldweinCommittee for a Responsible Federal Budget
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Both the Social Security retirement and Medicare HI trust funds face insolvency in 7 years. Goldwein proposes an Employer Compensation Tax that would “generate enough revenue to close two-thirds of Social Security’s funding gap and half of Medicare’s.”
Can taxing employers' total compensation costs close Social Security's funding gap?
Core argument: The proposed Employer Compensation Tax would replace the 7.65% employer-side payroll tax with a flat tax on each firm's total annual compensation costs, leaving the worker-side payroll tax and benefit calculations unchanged from current law.
This Trust Fund Solution would replace the 7.65% employer-side payroll tax with a new flat Employer Compensation Tax (ECT) imposed on the full cost of all compensation firms pay each year. The worker-side payroll tax and benefit calculations would remain the same as under current law. The ECT would be imposed on each employer’s total compensation costs rather than each worker’s pay. The Urban Institute modelled two ECT options to improve trust fund solvency. A Full ECT that maintains the current combined tax rate of 15.3% and uses the revenue for solvency, and a Rate-Cut ECT that uses about half the revenue to reduce the combined tax rate by 1 percentage point to 14.3% and the remaining revenue to improve solvency. The ECT could generate enough revenue to close two-thirds of Social Security’s funding gap and half of Medicare’s. Alternatively, it could close one-third of Social Security’s shortfall and one-eighth of Medicare’s while also cutting taxes for the bottom 60% of American workers. The ECT alone would not be sufficient to restore solvency to Social Security and Medicare at the current payroll tax rate.
Takeaways by Macro Roundup® AI
The proposed Employer Compensation Tax would replace the 7.65% employer-side payroll tax with a flat tax on each firm's total annual compensation costs, leaving the worker-side payroll tax and benefit calculations unchanged from current law.
The Urban Institute modelled a Full ECT that maintains the combined 15.3% tax rate and directs the revenue to solvency, which could close two-thirds of Social Security's funding gap and half of Medicare's.
The Urban Institute's Rate-Cut ECT option would use about half the revenue to lower the combined rate by 1 percentage point to 14.3%, closing one-third of Social Security's shortfall and one-eighth of Medicare's while cutting taxes for the bottom 60% of American workers.
Related Articles:
What Progressives Should Be Thinking About Social Security Reform— Other English-speaking countries such as the UK, Canada, Australia, Ireland and New Zealand direct more pension spending toward preventing old-age poverty and far less toward middle- and upper-income retirees, with maximum US Social Security benefits running two to four times higher in dollar terms. One proposed reform would base benefits on years worked rather than contributions.
Social Security and Trends in Wealth Inequality— The authors estimate that including Social Security in household wealth leaves top wealth shares little changed over three decades, with the top 10% and top 1% shares rising 1.1 and 1.6 percentage points versus roughly 9 and 6 points for marketable wealth alone. Social Security wealth grew from $7tn to $39tn.
Trends in the Distribution of Family Wealth, 1989 to 2022— The Congressional Budget Office estimates that the top 10% of U.S. families held 60% of all wealth in 2022, up from 56% in 1989, with the top 1% holding 27%, up from 23%. The rest of the top half saw its share fall from 37% to 33%, while the bottom half held 6% in both years.
