Does Build Back Better Cost $1.6 Trillion or $2.4 Trillion?
UPDATE 12/10: Since this analysis was published, the Congressional Budget Office (CBO) has issued a correction to their initial estimate of H.R. 5376. Instead of adding $160 billion to deficits over ten years, CBO now estimates the bill will add $158 billion to deficits over ten years.
The Congressional Budget Office (CBO) recently estimated that the House-passed Build Back Better Act will increase outlays by $1.64 trillion over ten years and revenue by $1.27 trillion and generate an additional $207 billion of revenue from increased Internal Revenue Service (IRS) funding for tax enforcement. CBO's $1.64 trillion figure differs from our $2.43 trillion gross cost estimate not because the scores are different, but because what is being measured is different. CBO’s $1.64 trillion figure represents the increase in net outlays, while our $2.43 trillion estimate represents the gross cost of the legislation.
CBO's measure of outlays represents the effect of the Build Back Better Act on total government spending – including increases and reductions in appropriations, mandatory spending, and the refundable portion of expanded tax credits. Negotiations, discussions, and presentations of the legislation, however, have focused on the "gross cost" – the total amount of spending increases and tax cuts in the legislation.
In broad strokes, calculating gross costs from outlays requires removing spending cuts and adding in tax cuts. In practice, determining gross costs requires judgement calls as to which policies should be considered a "cost" and which should be considered an "offset,” and reasonable estimators can differ.
CBO's $1.64 trillion estimate of net outlays includes roughly $290 billion of spending cuts, meaning the legislation has roughly $1.93 trillion of gross spending increases. Our measure of gross outlays counts the net impact of immigration and health care re-insurance funding (both include spending and revenue) on the cost side and counts IRS funding on the offset side, bringing the gross outlay cost to about $1.8 trillion.
On top of the $1.8 trillion of gross outlays, the legislation includes almost $350 billion of tax cuts, including clean energy tax credits ($215 billion), Affordable Care Act (ACA) premium tax credits ($50 billion), and additional tax cuts such as the proposed Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC) expansions. Incorporating these costs lifts the total gross cost to $2.15 trillion, a figure consistent with estimates from the New York Times, the Penn Wharton Budget Model, and the White House.
Bridge Between Estimates of Net Outlays and Gross Costs in the Build Back Better Act
|Net Outlays (CBO)||$1,635 billion|
|Remove outlay portion of prescription drug reforms & DSH savings||$290 billion|
|Remove increased IRS funding||-$80 billion|
|Count immigration reform based on net fiscal impact||-$30 billion|
|Count reinsurance based on net fiscal impact||-$10 billion|
|Gross Outlays (CRFB)||$1,805 billion|
|Add revenue loss from clean energy tax credits||$215 billion|
|Add revenue loss from ACA provisions||$50 billion|
|Add revenue loss from individual income tax credits||$35 billion|
|Add revenue loss from infrastructure-related tax cuts||$30 billion|
|Add revenue loss from other tax cuts & interactions||$15 billion|
|Gross Costs, excluding SALT deducation cap reform (CRFB)||$2,150 billion|
|Add SALT deduction cap increase to $80,000 from 2021 to 2025||$275 billion|
|Gross Costs (CRFB)||$2,425 billion|
Sources: Congressional Budget Office and Committee for a Responsible Federal Budget.
Our gross cost estimate also includes the $275 billion cost of increasing the cap on the State and Local Tax (SALT) deduction from $10,000 to $80,000 from 2021 through 2025, bring total gross costs to $2.43 trillion. This estimate is consistent with that of Donald Schneider of Corner Stone Macro. Because the Build Back Better Act raises money on paper (this is a budget gimmick) by also extending that cap beyond its current law expiration, some estimates combine the revenue lost and raised from reforms to the SALT deduction cap into a single line item with a $15 billion revenue gain. While we believe our treatment of the SALT deduction cap is preferable, either approach results in a gross cost well above $2 trillion and well above CBO's outlay estimate of $1.64 trillion.
Furthermore, just as the gross cost of the Build Back Better Act is substantially higher than the increase in outlays, the gross offsets from the legislation are much larger than the net revenue increase. While CBO estimate a $1.27 trillion increase in revenue ($1.48 trillion including $205 billion of non-scoreable revenue from increased IRS funding), we find the legislation includes $2.27 trillion of total offsets.
Bridge Between Net Revenue and Gross Offsets in the Build Back Better Act
|Net Revenue (CBO)||$1,270 billion|
|Remove revenue loss from clean energy tax credits||$215 billion|
|Add non-scoreable revenue from increased IRS funding||$205 billion|
|Remove revenue loss from ACA provisions||$50 billion|
|Remove revenue loss from individual income tax credits||$35 billion|
|Remove revenue loss from infrastructure-related tax cuts||$30 billion|
|Other adjustments||-$40 billion|
|Gross Revenue (CRFB)||$1,765 billion|
|Remove increased IRS funding||-$80 billion|
|Add prescription drug pricing reform savings||$270 billion|
|Add DSH savings after 2025||$20 billion|
|Gross Offsets, excluding SALT deduction cap reform (CRFB)||$1,975 billion|
|Impose SALT deduction cap from 2026 to 2031||$290 billion|
|Gross Offsets (CRFB)||$2,265 billion|
Sources: Congressional Budget Office and Committee for a Responsible Federal Budget. Numbers may not sum due to rounding.
Excluding changes to the SALT deduction cap, we estimate gross offsets of $1.98 trillion. To get from CBO's $1.27 trillion revenue estimate to our $1.98 trillion offsets figure, we remove roughly $300 billion of tax cuts, add a similar amount of health care savings, and incorporate roughly $125 billion of offsets from increased funding to the IRS ($205 billion of revenue minus $80 billion of new spending). Adding in $290 billion of revenue from imposing a SALT deduction cap from 2026 to 2031 (when there is no cap under current law) brings total gross offsets to $2.27 trillion. As with gross spending, different judgments could lead to different conclusions on the exact size of offsets in the package.
Importantly, whether looking at outlays and revenue or gross costs and offsets, the deficit impact does not change. The House Build Back Better Act will add $158 billion to the deficit as written (before interest), and could add trillions more if expiring provisions are extended without offsets.
Our full cost estimate of the Build Back Better Act can be found here.
Read more options and analyses on our Reconciliation Resources page.