BEYOND THE NUMBERS
Update, December 22: We revised this post to update our projection of the savings from BBB in the second decade.
The House-passed Build Back Better (BBB) legislation would generate substantial savings in its second decade (2032-2041), CBPP projections show.
Over the first decade, the Congressional Budget Office (CBO) estimates that the legislation is very nearly paid for — and more than paid for if one uses the Treasury Department’s reasonable estimate of the savings generated by BBB’s IRS enforcement provisions rather than CBO’s estimate.
The CBO estimates of BBB show that it would cost a modest $158 billion over the next ten years (representing 0.1 percent of gross domestic product, or GDP, over that period), with costs turning to savings by 2027. We project that these savings would continue into the second decade, with second-decade savings totaling $1.8 trillion (0.4 percent of GDP).
In fact, the bill’s savings could be slightly larger. As noted, BBB would reduce the large gap between federal taxes that are owed and those that are actually paid by providing funding for more IRS staffing and other resources for the IRS to upgrade its operations and better ensure that wealthy individuals and large corporations meet their legal responsibilities. Both the Treasury Department and CBO agree that these provisions would generate additional revenues that would exceed their costs, but the Treasury Department assumes a greater return on this investment.
We believe that the Treasury Department’s figures are reasonable and, if we adjust CBO’s estimates of IRS enforcement for the Treasury estimates, CBO’s first-decade net cost would become a savings of $115 billion. Under those assumptions, our second-decade estimate of savings would grow from $1.8 trillion to roughly $2.0 trillion.
The table below lists the main BBB provisions that have second-decade budgetary effects — some costs, some savings — showing our extrapolations based on CBO’s first-decade estimates (except in the case of the immigration provisions, for which CBO estimates are available). Since the bill’s provisions are generally fully phased in by the end of the first decade, extrapolating their budgetary impacts in the second decade is relatively straightforward — by looking at the growth rates in costs and savings as the policies come into full effect. Many BBB provisions have little or no second-decade effects, so we do not show them separately.
BBB would address important issues facing the nation, such as climate change, child care and education, housing, paid leave, immigration, poverty, and income inequality, making sorely needed federal investments and raising revenues from the well off and large corporations. Any assessment of the bill should focus mainly on the merits of these policies.
Nevertheless, there is legitimate interest in how the bill would affect projected deficits. The short answer: in the first decade, it largely or completely covers its costs and, in the second, it produces roughly $2 trillion in net savings.
|Estimates of the Fiscal Effects of Build Back Better (BBB) in the Second Decade
($ in billions)
|Provisions of BBB that have second-decade effects:
|2032 – 2041
|Green energy incentives
|Immigration / Judiciary Committee provisions
|Home- and community-based services
|Child Tax Credit and similar benefits
|Reduce the tax gap (IRS enforcement)
|Reduced costs of Medicare prescription drugs
|Reduce the tax gap: additional savings from extrapolating Treasury’s estimate for IRS enforcement
|Total, with Treasury’s IRS enforcement
*Division H of the Ways and Means Committee title, excluding IRS enforcement.
Notes: Figures do not include debt service costs. Years are fiscal years.
Source: Projections based on CBPP analysis of Congressional Budget Office cost estimates of House-passed Build Back Better (H.R. 5376) for 2022-2031, except for the Immigration/Judiciary Committee provisions, which reflect CBO’s estimates.