The MacIver Institute has released new projections of the impact of the Tax Cuts and Jobs Act on Wisconsin:
…65,318 jobs would be created in 2018 if tax reform is enacted. The same study shows that Wisconsin workers could see their wages increased by nearly $2.5 billion.
One choice passage from the documentation:
As with all models developed by JDA, the basic structure is a micro-economic model that takes into account the interactions between different types of taxpayers, and different industries. This differs from many of the other models being used by different organizations which are developed around macroeconomic forecasting platforms known as Computerized General Equilibrium (or CGE) models. We believe that this provides both a more flexible structure, particularly for forecasting state and industry level effects of a tax proposal. It also allows us to dispense with most of the ore [sic] controversial and complicated assumptions needed to run a CGE model, relying instead on the time tested national input-output model structure, which has been used since it was first developed to assist in industrial production planning during the Second World War.
The input-output model (associated with Wassily Leontiev) implies perfect complementarity of inputs, or alternatively, no substitutability. Hence, relative input prices have no effect on relative quantities of inputs used. This is a pretty odd assumption to incorporate into a model of taxation, where changes in relative prices would seem to be key to changing behavior.
With this structure, it might seem odd that there is an increase in GDP and employment relative to baseline implied by the model. The key assumption is apparently here:
… since all taxes are eventually passed through to people, the assumption that income would either rise or fall with changes in revenues across each tax incidence category is likely sound.
Well, sure, if Ricardian equivalence holds…
By the way, interesting predictions: 8.7 billion increase in state GDP in 2018 is about 3% of 2017Q2 GDP — i.e., state GDP will be 3% higher than baseline(!!!) in the year the tax cuts take effect; employment is about 2.2% higher than mid-2017 levels.