Economic Implications of Tax Reform

Excellent new study on the unintended consequences of the "mansion tax" in Los Angeles -- with takeaways that could/should be applied to other cities tempted by the politically attractive idea of taxing high-dollar real estate transactions (including multifamily!) to fund affordable housing. Top takeaways from the UCLA researchers who authored the paper: "The Unintended Consequences of Measure ULA." 1) Property sales plummeted -- even when adjusting for market shifts. Controlling for higher interest rates and construction costs, the authors "found that high-value transactions in the City of LA dropped 30-50 percentage points more than in the rest of the county. That's the effect of ULA (the tax's formal name) specifically," wrote Mott Smith, one of the UCLA researchers. 2) Measure ULA applies a 4-5.5% tax on all property sales above $5 million -- even older "Class C" apartments that look nothing like the "mansions" that the tax was marketed to be for. Reduced sales on >$5mm properties resulted in lesser housing production, lesser job growth, lesser property tax growth and lesser ULA revenue. For multifamily construction: ULA is a double tax -- taxing developers on the land acquisition and then the exit. 3) "We estimate ULA reduced multifamily sales by >60%. That makes housing production riskier and less attractive," Smith wrote. 4) ULA led to reduced property sales which, in turn, reduced property tax growth significantly. "We estimate that sales (among properties subject to ULA) drive approximately 40% of LA property tax growth. Cutting those sales in half cuts growth proportionally. That means less funding for schools and county safety-net services," Smith wrote. "Slower tax base growth compounds over time. So, in 10–12 years, the annual property tax revenue suppressed by ULA could actually exceed the annual ULA funds raised." 5) It takes awfully rose-colored glasses to label LA's mansion tax anything other than a poorly designed, abysmal failure resulting in LESS affordable housing despite promises for more of it. "The more it suppresses transactions, the less it raises for low-income renters. Despite projections it would raise $600mm-$1.1b/year, so far it's averaged just $288mm/year." Conclusion: The authors propose modifying ULA to apply only to "actual mansions" as it had been sold to voters, thereby excluding multifamily and other commercial real estate. Measure ULA is one of numerous examples of cities pursuing half-baked ideas with good intentions but little study -- resulting in unintended consequences on the very people these programs are intended to help. We see the same with rent control, inclusionary zoning, eviction moratoria, etc. It always amazes me that in an era of "trusting the science," the science is continually ignored when it comes to housing. #housing #multifamily #ULA https://lnkd.in/gFhJgic8

Tax reform is one of the hardest policy questions a government faces, and the right place for it is between policymakers and the people affected, not in slogans and memes. I appreciate what tax dollars pay for in this country, and I support the government tackling the structural fiscal challenges this budget is grappling with. The problem with the proposed changes to CGT isn't one of founder wealth. It's about what happens downstream if founders leave, or never start at all. Tech is now Australia's second-largest industry. It didn't exist 30 years ago. It's growing 50% faster than the broader economy and has added 161,000 jobs in three years. The next Atlassian or Canva employs thousands of people who join for the equity, not just the base. If those companies get built in San Francisco or Singapore, the jobs follow. The startup sector also runs on a recycling system. Founders who exit become the angels and expertise behind the next wave. Early employees become founders. Capital and operational know-how compound across generations of companies. Tax the loop too hard and you slow a flywheel that has taken decades to get spinning. I was in the UK when its government foresaw this problem and built policy to keep founders in-country. Australia copied half that playbook. The ESVCLP and VCLP regimes were lifted from the UK's investor-side scaffolding. We never built the entrepreneur-side equivalent. I don't expect a mass exodus. Most founders will stay. But true innovation is a game of outliers. A handful of the next generation of significant companies choosing to build, employ and exit somewhere else is enough to materially change the trajectory of Australia's tech sector, and the jobs, super returns and tax receipts that flow from it. Under the proposed regime, the effective tax rate on a founder exit roughly doubles, from 23.5% to 47%. Higher than the OECD average of 19%. Higher than the UK's 18% Business Asset Disposal Relief cap. Higher than the US (0% on the first $10M under Section 1202). Far higher than Singapore and NZ, both at 0%. We'd be an outlier on a margin that, in this industry, really matters. I'm encouraged Treasurer Chalmers has opened a consultation on early-stage treatment. As an industry our ask should broaden from "sparing founders" to enacting a framework that actively incentivises entrepreneurship. The UK and US regimes are off-the-shelf models, stress-tested for decades. Either is a credible starting point. The case that lands isn't the one we make to each other. It's the one we make to the Australian who has never started a company, never held ESS, but whose super balance, kids' future jobs and country's next chapter all sit downstream of whether founders take the risk in this country or somewhere else.

GST 2.0 are more than a rate revision, they are a structural step towards making India’s tax system #simpler, #fairer, and more #growth-oriented. By simplifying #GST to just two slabs - 5% and 18% (with 40% only for luxury and sin goods), the reform eliminates long-standing complexities that often burdened smaller enterprises. This directly lowers input costs, improves margins, and enhances competitiveness in both domestic and export markets. Equally important are the measures to make compliance easier. Pre-filled returns, faster registration, standardised invoicing, and quicker refunds, including provisional refunds of up to 90%, reduce the administrative burden while unlocking working capital. For small businesses, this is more than convenience; it is liquidity that can be channelled into #innovation, #expansion, and #resilience. The impact of reform extends to the #retail sector making goods and services significantly affordable. This is expected to boost consumer demand, increase sales, and create new opportunities for lenders driving a multiplier effect across both credit growth and broader consumption. GST 2.0 is not just about reducing tax rates, it is about reshaping the environment in which businesses and consumers can thrive. By empowering MSMEs, simplifying compliance, and unlocking demand in key sectors, this reform goes beyond incremental change. It positions #India for its next phase of inclusive, innovation-led, and sustainable growth. India’s growth story today is being shaped by multiple tailwinds, 7.8% GDP growth this quarter, a favourable monsoon, easing inflation, and proactive monetary measures through repo and CRR cuts. With GST rationalisation now lowering input costs, the stage is set for businesses and consumers alike to benefit. If this momentum continues, India may well achieve its aspiration of becoming the world’s third-largest economy even earlier than expected. #GSTReform #MSMEs #SMEs #FinancialInclusion #EconomicGrowth #IndiaGrowthStory #EaseOfDoingBusiness #InclusiveGrowth

The Federal Budget’s housing tax changes are designed to push investor demand away from established homes and toward new supply. That may help some buyers. But it also raises bigger questions about how the housing market actually works. Rental homes are not interchangeable. Regional markets do not always have new supply ready to replace established rentals. Rentvesting has become an important pathway for younger buyers. Labour mobility depends on rental availability. And tax incentives alone do not fix planning delays, infrastructure gaps, labour shortages or construction costs. My latest piece looks at the trade-offs behind the reforms - who benefits, who may be exposed, and why affordability pressure may move through the system rather than disappear.

Investment hates uncertainty—when tax rules change, investments change with them.   And a recent survey shows that this is particularly true in the energy sector   Last week, the American Council on Renewable Energy (ACORE) released their “Tax Stability for Energy Dominance” report which surveyed clean energy investors and developers representing over $15 billion in investments.   The good news is most investors expect to increase their investments over the next three years if there are no policy modifications to federal energy tax credits. This makes sense. Energy demand is rising, project costs are stable, and domestic clean energy supply chains are building out rapidly.   However, if tax policy shifts, investors will drift.   The ACORE survey finds that if tax credits go away or uncertainty is injected into markets, 84% of investors and 73% of developers anticipate decreasing their activity in clean energy.   And of course, this makes sense too. The deals, contracts, and investments that these investors planned were built on the expectation of stable policy. When that policy is changed, investors and developers will reconsider their actions.   To be blunt, America cannot afford to undercut clean energy’s momentum right now.   We are facing the largest increase in energy demand since World War 2, and we need every electron on our grid to meet this challenge. Pulling the rug out from under these projects will only reduce investment, destroy jobs, and raise energy costs.   Read more from this timely survey: https://lnkd.in/exzbR6Xy

The proposed Capital Gains Tax overhaul is a direct hit to the Australian innovation ecosystem. The proposed shift from the 50 per cent CGT discount to inflation indexation could materially worsen outcomes for Australian founders and early-stage investors, particularly where value is created through innovation rather than inflation. This is another example of the unintended consequences of federal policies that ultimately impact the innovation ecosystem. For years, Australia has fought to stop companies from moving overseas to secure capital. Now, we are creating the perfect catalyst for them to leave. Here is what this means for the market: - Founder Flight: Innovators will move to jurisdictions that actively reward ambition and risk. - Talent Drain: Employee Share Schemes become far less viable for attracting top talent when the equity upside is taxed at the highest marginal rate. - Capital Retreat: Investors will face lower after-tax returns, shrinking the pool of early-stage capital available to be reinvested in the next generation of Australian businesses. Rather than a blunt reduction or removal of the CGT discount, any reform should include carve-outs or mechanisms that reward genuine risk-taking in startups. Startups are not passive property investments: their value is created through founder effort, significant sacrifice, innovation, and long holding periods, so tax policy should preserve incentives for early-stage capital and employee equity participation. This is a pivotal moment for Australian capital markets. We need policies that incentivise productive capital, not penalise the founders building the future.

𝐀𝐈 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭𝐬 𝐛𝐲 𝐔.𝐒. 𝐅𝐢𝐫𝐦𝐬 𝐅𝐮𝐞𝐥 𝐆𝐥𝐨𝐛𝐚𝐥 𝐆𝐫𝐨𝐰𝐭𝐡! 🌍 🚀 🤖 In a time when fears of trade wars and growing economic protectionism dominate the headlines, here’s a hopeful message from our new research: 📢 𝘈𝘐 𝘪𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵𝘴 𝘮𝘢𝘥𝘦 𝘣𝘺 𝑼.𝑺. 𝒇𝒊𝒓𝒎𝒔 𝘨𝘦𝘯𝘦𝘳𝘢𝘵𝘦 𝘳𝘦𝘢𝘭, 𝘱𝘰𝘴𝘪𝘵𝘪𝘷𝘦 𝘴𝘱𝘪𝘭𝘭𝘰𝘷𝘦𝘳𝘴 𝘧𝘰𝘳 𝘦𝘤𝘰𝘯𝘰𝘮𝘪𝘦𝘴 𝒊𝒏 𝑬𝒖𝒓𝒐𝒑𝒆! Together with Emilia Gschossmann from University of Mannheim Business School - Fakultät BWL, we combined fascinating new data on U.S. firms’ AI investments (thanks to Tania Babina and team) with granular data on U.S. firm linkages to European operations and industries. Here’s what we found 👇 📈 𝘜𝘚 𝘪𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵 𝘢𝘯𝘥 𝘧𝘰𝘳𝘦𝘪𝘨𝘯 𝘨𝘳𝘰𝘸𝘵𝘩 • U.S. firms’ #AI investments drive growth in the U.S. firms' foreign subsidiaries’ assets, employment, and revenues. • This leads to aggregate #spillovers in whole European industries that are more exposed to U.S. AI-active firms. • Mechanisms: U.S. firms expand not only capital and output but also R&D, productivity, and market presence. Peer firms (domestic and non US-owned firms) likely benefit due to AI's knowledge flowing across the economy. 💶 𝘛𝘢𝘹 𝘱𝘰𝘭𝘪𝘤𝘪𝘦𝘴 𝘮𝘢𝘵𝘵𝘦𝘳 • Countries with strong R&D tax incentives experience faster and larger AI-driven growth. • Lower corporate tax rates amplify the revenue spillovers from U.S. firms. • At the subsidiary level, U.S. firms expand not only capital and output but also R&D, productivity, and market presence—especially where the local tax regime is favorable. 🧠 𝘐𝘯 𝘴𝘩𝘰𝘳𝘵: 𝘍𝘪𝘴𝘤𝘢𝘭 𝘱𝘰𝘭𝘪𝘤𝘺 𝘴𝘩𝘢𝘱𝘦𝘴 𝘵𝘩𝘦 𝘨𝘭𝘰𝘣𝘢𝘭 𝘥𝘪𝘧𝘧𝘶𝘴𝘪𝘰𝘯 𝘰𝘧 𝘈𝘐—𝘢𝘯𝘥 𝘩𝘦𝘭𝘱𝘴 𝘥𝘦𝘵𝘦𝘳𝘮𝘪𝘯𝘦 𝘸𝘩𝘰 𝘣𝘦𝘯𝘦𝘧𝘪𝘵𝘴 𝘧𝘳𝘰𝘮 𝘵𝘩𝘦 𝘥𝘪𝘨𝘪𝘵𝘢𝘭 𝘵𝘳𝘢𝘯𝘴𝘧𝘰𝘳𝘮𝘢𝘵𝘪𝘰𝘯. 𝘛𝘩𝘦𝘴𝘦 𝘪𝘯𝘴𝘪𝘨𝘩𝘵𝘴 𝘢𝘳𝘦 𝘪𝘮𝘱𝘰𝘳𝘵𝘢𝘯𝘵 𝘢𝘴 𝘌𝘶𝘳𝘰𝘱𝘦𝘢𝘯 𝘱𝘰𝘭𝘪𝘤𝘺𝘮𝘢𝘬𝘦𝘳𝘴 𝘵𝘳𝘺 𝘵𝘰 𝘢𝘵𝘵𝘳𝘢𝘤𝘵 𝘈𝘐-𝘳𝘦𝘭𝘢𝘵𝘦𝘥 𝘵𝘦𝘤𝘩 𝘢𝘯𝘥 𝘴𝘶𝘱𝘱𝘰𝘳𝘵 𝘦𝘤𝘰𝘯𝘰𝘮𝘪𝘤 𝘨𝘳𝘰𝘸𝘵𝘩. I had the great pleasure of presenting this work last week at MIT Sloan School of Management—could there be a better place to discuss the economic impact of emerging tech? Huge thanks to Andrew Sutherland, Michelle Hanlon, Felix Vetter and the entire MIT crew for the invitation and thoughtful comments for our work in progress! 🙏 📎 For those interested in the details - Slides from the talk are attached, and you can read the full paper here: https://lnkd.in/ep3Qcq7Q (updated version coming soon!) 💬 👇 Would love to hear your thoughts—especially from those working at the intersection of tech, tax policy, and global markets. Thanks to the Wheeler Institute for Business and Development at London Business School for generously supporting this research! #taxesmatter

Have you ever wondered why a small change in tax policy can reshape entire industries? In this month’s Dean’s Call, I speak with IESE Business School Prof. Martin Jacob, whose research uncovers how taxes influence businesses far beyond what most leaders imagine. Our conversation shows why understanding tax dynamics is no longer optional for anyone making strategic decisions. Martin explains how taxes can affect companies even when it seems they would not, influencing supply chains, shifting customer behavior and determining whether an expansion plan succeeds or stalls. A couple insights that stayed with me: - Tax systems work best when compliance is simple. Making it easier for companies and governments reduces costs and increases clarity. - Policymakers often design taxes with clear goals, yet the unintended consequences can be even more powerful. Leaders need to anticipate these ripple effects early. It is a conversation that may change the way you think about taxes and their role in long-term decision making.

#GSTReforms #Diwali2025! 🇮🇳 India's GST reform just got smarter—and more progressive. The government's decision to streamline from 4 tax slabs to 3 isn't just administrative efficiency. It's strategic economic policy in action. Here's what stands out: 1️⃣ The new structure rewards the common person Essential goods (food, healthcare, education) stay at 5% or are fully exempt. Health and life insurance? Now zero-rated. Meanwhile, "sin" goods and luxury items face the new 40% slab—tobacco, alcohol, luxury cars, and high-sugar beverages. 2️⃣ Short-term cost, long-term gain Yes, there's an estimated ₹45,000-50,000 crore revenue hit initially. But this is much smaller than expected, as losses on essentials are made up by higher taxes on sin and luxury goods! And here's the economic logic—putting more money in consumers' pockets through lower rates on everyday items creates a demand multiplier. Higher consumption → broader tax base → eventual revenue recovery. 3️⃣ Global alignment Taxing unhealthy consumption at premium rates while keeping essentials affordable mirrors successful tax policies worldwide. This isn't just tax reform—it's social policy through fiscal design. Progressive taxation that makes economic essentials more accessible while discouraging harmful consumption. The real test? Whether this demand boost materializes as projected. Early indicators will be crucial. I discuss with Kartik Malhotra on News9 #GST #TaxPolicy #IndianEconomy #PublicPolicy #EconomicReforms #GSTReforms #GDP #Growth

What made this edition of the Deloitte Economic Outlook, May 2025 particularly interesting is its attempt to quantitatively assess two key developments: the government’s strategic tax stimulus and the potential effects of evolving trade dynamics, both of which could significantly influence the economy’s trajectory, are key factors to consider. I’m especially interested in how the government intends to offset the INR 1 trillion revenue shortfall resulting from the tax exemptions. While it’s projected that the stimulus will boost revenues by INR 1.6 trillion annually, matching this with actual fiscal provisions is critical to staying on track with deficit targets. Although the policy is likely to boost disposable income, the real question is how much of that will translate into increased consumption and trigger a significant multiplier effect. This is something worth closely monitoring. Link: https://lnkd.in/dhxmpnKN #Deloitte #IndiaEconomy #TaxStimulus #TradeWar #EconomicOutlook