CBO: The shutdown is not going down easily. CBO estimates that the partial shutdown eliminated or delayed $18 billion in federal spending. This lowered the level of real GDP in the first quarter of 2019 by $8 billion, or 0.2 percent. The partial shutdown trimmed another 0.1 percent off of fourth quarter 2018 growth. Some of the reduced economic activity will be made up once federal workers are paid.
CBO also looks at the future. Meanwhile, CBO projects the budget deficit will climb to $897 billion this year, and economic growth will slow to 2.3 percent as the short-term benefits of the Tax Cuts and Jobs Act fade. By 2020, growth will slow to 1.7 percent, far below the 3 percent prediction of the Trump Administration, and the deficit will increase to at least $970 billion.
And the TCJA did not turbocharge business spending. The National Association of Business Economics’ latest poll finds that 84 percent of company respondents are not changing investment plans because of TCJA’s tax cuts. The White House predicted that reducing the corporate tax rate from 35 percent to 21 percent would boost business spending and growth. Instead, companies mostly used the additional after-tax income to buy back stock.
More relief please. The American Institute of CPAs has asked Treasury and IRS to protect from underpayment penalties taxpayers who have paid through withholding or estimated payments 80 percent of the taxes they owe. Treasury already agreed to reduce the safe harbor from 90 percent of taxes owed to 85 percent. But citing confusion over the TCJA, the AICPA is hoping IRS can grant taxpayers more relief.
How to choose among tax credits that aim to support work and children, and reduce poverty? TPC’s Elaine Maag discusses a new paper by Belle Sawhill and Christopher Pulliam of the Brookings Institution. They warn that the aims of many refundable tax credit proposals are not necessarily consistent with one another and urge policymakers to acknowledge the potential tradeoffs. Maag concludes that the authors “remind us that once Congress sets a goal, policymakers should be clear about what they’re setting out to do—and design policies that achieve that end most efficiently.”
Arizona officials still don’t know how to calculate state tax bills. That’s because the Arizona legislature did not vote last year to conform the state’s tax code to changes in the federal tax code. Why? Because they still haven’t decided what to do with additional state tax revenues generated by the TCJA. GOP Governor Doug Ducey wants to put the TCJA windfall into the state’s reserve fund, but GOP legislators want the money to go back to taxpayers.
Tune in this morning at 9:00 a.m. You can watch a conference on how states are responding to the TCJA. Questions to be considered: What are the TCJA’s implications for tax administration across different governments? How will the new tax laws affect states’ ability to attract people, jobs, and investment? What should the process and substance of future federal tax legislation look like? The conference is hosted by the Urban-Brookings Tax Policy Center, American Tax Policy Institute, Murphy Institute at Tulane University, and Boyd Center for Business and Economic Research at the University of Tennessee.
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- © Urban Institute, Brookings Institution, and individual authors, 2016.