An Update on Build Back Better Offsets
We have published an full estimate of the House's Build Back Better Act based on CBO's scores of the bill here.
Last week, the White House estimated that its Build Back Better framework included $1.995 trillion of offsets before accounting for the recent prescription drug pricing reforms and changes to the cap on the state and local tax (SALT) deduction. Based on new estimates from the Joint Committee on Taxation (JCT) and a September estimate from the Congressional Budget Office (CBO), it appears official scorekeepers will find closer to $1.7 trillion of offsets from provisions in the original framework and over $2.1 trillion in total offsets. This is likely to roughly cover the new spending and tax cuts in the reconciliation package, though it could fall somewhat short, depending on the costs of the paid leave and immigration provisions.
Among the offsets scored by JCT, the official estimates are mostly in line with those from the Administration. The White House originally estimated about $1.45 trillion of revenue, including $800 billion from corporations, $420 billion from passthrough entities, and $230 billion from surtaxes on income above $10 million. JCT estimates $1.46 trillion of total revenue, including $820 billion from corporations, $410 billion from passthrough entities, and $230 billion from the new surtaxes. The Administration also claimed $145 billion of savings from canceling the Trump Administration’s drug rebate rule – an estimate that we find reasonable and include in our analysis.
Missing from the JCT score is an estimate of the proposed $80 billion increase in Internal Revenue Service (IRS) funding, which will need to be scored by CBO. Based on recent estimates from CBO, we believe the agency will conclude that new IRS funding to narrow the tax gap will raise roughly $120 billion on net, substantially lower than the Administration's estimate of $400 billion. While the Administration believes $80 billion of tax enforcement funding will raise $320 billion of gross revenue directly and generate another $160 billion by discouraging tax cheating, CBO believes the direct and indirect effects will raise $200 billion of gross revenue on a combined basis.
Assuming a $120 billion net boost results in over $1.7 trillion of net offsets in the original framework, compared to the White House’s estimate of $1.995 trillion.
|Impose a 15 percent domestic minimum tax on large corporations||$325 billion||$320 billion|
|Impose a 1 percent surcharge on corporate stock buybacks||$125 billion||$125 billion|
|Impose a 15 percent global minimum tax & reform international taxation||$350 billion||$375 billion|
|Impose a 5 percent surtax on income above $10 million & an 8 percent surtax on income above $25 million||$230 billion||$230 billion|
|Expand the 3.8 percent Net Investment Income Tax||$250 billion||$250 billion|
|Extend and expand limits on deductibility of business losses||$170 billion||$160 billion|
|Increase IRS funding to boost tax enforcement (not JCT)||$400 billion||$120 billion*|
|Repeal Trump-era drug rebate rule (not JCT)||$145 billion||$150 billion|
|Subtotal, Original White House Offsets||$1,995 billion||$1,730 billion|
|Restore Superfund taxes on oil and enact other tax changes||n/a||$45 billion|
|Reduce prescription drug costs (not JCT)||n/a||$100 billion|
|Extend $72,500 SALT deduction cap beyond 2025||n/a||$265 billon+|
|Total, Build Back Better Offsets||$1,995 billion||$2,140 billion|
Sources: The White House and Joint Committee on Taxation. *A recent CBO estimate found $80 billion of IRS funding would produce $120 billion of net revenue, though that figure could differ based on details but is unlikely to approach $400 billion. +Represents current law savings from imposing the cap beyond its current expiration, which would pay for the cost of increasing the cap between 2021 and 2025; while this change raises revenue on paper relative to current law, it would substantially increase the cost of extending the TCJA and thus is likely to result in lower revenue collection over time.
Importantly, however, the current House bill includes several measures that were not part of the original White House framework. This includes $45 billion of revenue from reinstating Superfund taxes on oil, a new nicotine tax on e-cigarettes, a modification of rules relating to retirement plans, and other smaller provisions. It also includes a Medicare Part D and drug pricing reform, which could save about $100 billion on net (though we are still awaiting a CBO score of the policy).
Finally, the legislation imposes a $72,500 cap on the SALT deduction for tax years 2026 through 2031, after the current cap and other parts of the Tax Cuts and Jobs Act (TCJA) expire. On paper, this new cap would offset the $265 billion cost of increasing the cap from $10,000 to $72,500 for tax years 2021 through 2025. In reality, it is unlikely Members of Congress support this cap without an extension of large parts of the TCJA; the practical effect of this change will be to make that extension more costly. We include this offset in the table above to best reflect the likely findings of official scorekeepers.
Taken together, we estimate the offsets will raise or save roughly $2.14 trillion over a decade. The gross cost of spending and tax breaks in the bill is likely to be between $2.1 trillion and $2.3 trillion; a final CBO score is still pending. Depending on that score, these offsets will either fully or nearly cover the cost of the bill. However, the bill relies on a number of arbitrary expiration gimmicks, hiding the true cost of policies that are intended to be permanent. If these policies were extended without offsets it would substantially increase the deficit.
Appendix: Tax Cut Estimates
In addition to scoring the revenue raising provisions, JCT also provided estimates for most of the tax cuts in the Build Back Better Act. In total, JCT estimated these provisions will cost $830 billion. Importantly, the tax cuts included in JCT's estimate differ somewhat from those in the Administration's original framework, and the below table does not incorporate any of the spending increases in the Build Back Better Act.
|Clean energy and climate-related tax credits and provisions||$320 billion||$325 billion|
|Child Tax Credit expansion||$200 billion||$185 billion|
|Earned Income Tax Credit expansion||$15 billion|
|Housing assistance and community development||unknown||$30 billion|
|Higher education and workforce development||unknown||$5 billion|
|Research and experimentation amortization delay||n/a||$5 billion*|
|SALT deduction cap increase to $72,500 for 2021 through 2025||n/a||$265 billion|
|Total, Tax Cuts||>$520 billion||$830 billion|
Source: The White House and Joint Committee on Taxation. *Represents a net cost of temporary delay of switching to amortization of research and experimentation expenses.
JCT estimated climate-related tax provisions would cost $325 billion, which is $5 billion more than the Administration's estimate – though it is unclear if the original White House framework envisioned the ultimate inclusion of a number of tax breaks beyond clean energy and electricity tax credits. JCT's estimate for extending the increased Child Tax Credit (CTC), making full refundability of the CTC permanent, and extending the expanded Earned Income Tax Credit are in line with the White House's $200 billion score.
Outside of these tax breaks, JCT estimated nearly $30 billion of tax cuts from housing and community and development – including the Low Income Housing Tax Credit – and over $5 billion of costs come from tax credits and incentives for higher education and workforce development. While the White House framework included $150 billion of costs to invest in housing affordability and $40 billion to expand access to higher education and invest in workforce development, it did not differentiate between the spending and revenue provisions, thus we were unable to break out the tax cuts in these areas based on the Administration's estimates.
JCT's estimates also highlight roughly $270 billion of tax breaks not in the original White House framework. This includes nearly $5 billion in revenue losses from delaying the amortization of research and experimental costs – a cost that would be far higher if the policy is ultimately cancelled. It also includes roughly $265 billion of tax cuts from increasing the SALT deduction cap from $10,000 to $72,500 for the next four years and retroactively for 2021.
In addition to the $830 billion gross cost from tax policies, we expect the Build Back Better Act will include substantial new spending. We look forward to official cost estimates of the reconciliation legislation from the Congressional Budget Office.
Read more options and analyses on our Reconciliation Resources page.