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CBO and JCT Estimates Show Senate Bill Skewed to Top, Harmful to Low- and Middle-Income Americans

November 18, 2017 at 1:45 PM

As we’ve explained, Joint Committee on Taxation (JCT) estimates show that the Senate Finance Committee tax bill provides by far the largest benefits to high-income people and leaves many low- and middle-income households worse off. A new Congressional Budget Office (CBO) analysis provides estimates for the bill’s impact on Medicaid and other federal health spending that’s not included in the earlier JCT estimates.

Combined, the JCT and CBO estimates show just how skewed the Senate bill is when it comes to its full effects on federal taxes and spending. In 2025:

  • The bill would on average reduce federal spending, or raise taxes, on households with incomes below $40,000 — cutting spending or raising taxes on these households by almost $36 billion. (See table.)
  • It would provide small tax cuts on average for households with incomes between about $40,000 and $75,000.
  • It would provide tax cuts averaging thousands of dollars for high-income households, including tax cuts averaging $36,000 for households with incomes over $1 million.
TABLE 1
Senate Finance Committee Tax Bill Distribution, Including Estate Tax Cuts and Changes in Spending, 2025
Income group Average dollar change (minus signs indicate losses) Total dollar change, (billions, minus signs indicate losses)
Below $10K   -$460     -$8.7  
$10-20K   -$590     - $12.2  
$20-30K   -$550     -$12.2  
$30-40K   -$160     -$2.6  
$40-50K   $110     $1.5  
$50-75K   $610     $17.4  
$75-100K   $1,040     $19.8  
$100-200K   $1,720     $56.2  
$200-500K   $5,840     $57.0  
$500K-$1 million   $17,590     $21.2  
More than $1 million   $35,890     $21.9  
Source: CBPP analysis of Joint Committee on Taxation Table JCX-59-17; Tax Policy Center Table T17-0061, CBO letter of 11/17/2017.

 

By 2027, the bill’s impact would be even more skewed. That’s because most of its individual income tax provisions expire after 2025, with only three provisions made permanent: large net tax cuts for corporations, repeal of the Affordable Care Act’s (ACA) individual mandate that people get health insurance or pay a penalty, and a slower inflation adjustment (the “chained CPI”) for tax brackets and certain other tax provisions, which raises taxes for households across the income distribution. By 2027, the bill would reduce federal spending, or raise taxes, on average for households with incomes up to $75,000, and by a total of about $60 billion (see second table).

 

TABLE 2
Senate Finance Committee Tax Bill Distribution, Including Changes in Spending, 2027
Income group Average dollar change (minus signs indicate losses) Total dollar change (billions, minus signs indicate losses)
Below $10K   -$530     -$10.1  
$10-20K   -$790     -$16.0  
$20-30K   -$740     -$16.7  
$30-40K   -$470     -$7.6  
$40-50K   -$370     -$5.3  
$50-75K   -$140     -$3.9  
$75-100K   $70     $1.5  
$100-200K   $170     $5.6  
$200-500K   $550     $5.4  
$500K-$1 million   $1,670     $2.0  
More than $1 million   $9,570     $6.0  

Source: CBPP analysis of Joint Committee on Taxation Table JCX-59-17; CBO letter of 11/17/2017. The bill's estate tax cut is scheduled to expire at the end of 2025, so is not included in these figures.

 

The spending cuts included in CBO’s distribution tables result from the individual mandate repeal. That provision would cause 13 million Americans to become uninsured, resulting in lower federal spending on Medicaid and cost-sharing subsidies that reduce out-of-pocket costs for low- and moderate-income people in the ACA marketplace (shown in the CBO analysis), and lower federal costs for premium tax credits that help low- and moderate-income people buy marketplace coverage and for the tax exclusion for employer-sponsored health insurance (which JCT already includes in its estimates). CBO’s tables also incorporate higher Medicare payments to hospitals for uncompensated care costs; these payments rise automatically when the uninsured rate increases. These payments have little impact on the overall distributions.

CBO and JCT’s analyses reflect their best estimates of the distribution of federal spending and tax changes, not changes in household well-being. As CBO explains, the Senate bill’s harm to households would in some cases be less, in other cases greater, than the dollar shifts shown in the tables.

The estimates, CBO wrote, “represent the cost to the government of the spending. CBO did not attempt to estimate the value that people place on that spending, which may be different from the actual cost to the government of providing the benefits. For instance, people who would enroll in health insurance under current law to avoid paying a penalty for not having it and who would choose not to have insurance under the proposal would probably value the benefits less than their average cost. [But] CBO also did not attempt to make any distributional allocations for people who would choose to obtain unsubsidized health insurance in the nongroup market and face higher premiums there compared with what would occur otherwise. (Under the proposal, premiums would be higher because some healthy people would choose not to have insurance.)” CBO recently estimated that repeal of the individual mandate would increase individual market premiums, on average, by 10 percent.

The combined CBO and JCT estimates crystallize the Senate bill’s priorities for allocating federal resources. It would transfer tens of billions of dollars a year away from lower-income households to help pay for high-income and corporate rate cuts.

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