Ripple Effects

Tonight, Fox News will undoubtedly be highlighting the report by the CBO and the JCT that the passage of the Dream Act “would increase budget deficits by $25.9 billion over the 2018-2027 period, boosting on-budget deficits by $30.6 billion and decreasing off-budget deficits by $4.7 billion over that period.” At least in part, the calculations are clearly incorrect because the report does not take into account the provisions of the new tax bill.

Here’s the pertinent portion of the report that deals directly with the tax effects (pages 15-16 of the pdf):

Higher revenues, according to JCT’s estimates, would largely stem from increased reporting of employment income by people who would legally be allowed to work under the legislation. That increase in reported wages would cause increases in receipts, mostly in the form of Social Security taxes, which are categorized as off-budget. In addition, CBO and JCT estimate that an increase in the number of people paying penalties associated with not having health insurance would increase revenues by $0.7 billion over the 2018-2027 period.

Those increases in revenues would be mostly offset for two reasons. First, increased reporting of employment income would result in increases in tax deductions by businesses for labor compensation, including those businesses’ contributions to payroll taxes. As a result, corporations would report lower taxable profits and pay less in income taxes. Noncorporate businesses, such as partnerships and sole proprietorships, also would report lower taxable income, which would decrease individual income taxes paid by the partners and owners. The decrease in income tax receipts would total $3.8 billion over 10 years. Second, CBO and JCT estimate that there would be a $1.2 billion decrease in revenues over the 2018-2027 period associated with increases in the nonrefundable portion of the premium assistance tax credit provided through the health insurance marketplaces established under the Affordable Care Act.

The new tax bill would increase the bottom line cost because it does away with the heath insurance penalties (an increase of $0.7 billion), but decrease the bottom line cost because, by lowering the tax rates on businesses, the tax decreases the $3.8 billion that the CBO/JCT estimates will be lost if the Dream Act is past due to increased business tax deductions.

Going one step further, the CBO/JCT estimates that the Dream Act will cost the federal government $11.8 billion in subsidies for health insurance purchased through the marketplaces. (Pages 10-11 of the pdf.) Of course, this assumption is incorrect, since it does not factor in the reduction of the subsidies anticipated as a result of the tax bill.

Finally, the report anticipates that passage of the Dream Act “would increase outlays for the . . . child tax credits, which are refundable, by $5.5 billion over the 2018-2027 period.”  (Page 12 of the pdf.) Of course, this is now incorrect since the tax act first increases the amount of the child tax credit, but then lowers the threshold when it phases out.

I will update this posting when I can get better numbers from the CBO on the tax bill. Suffice it to say, however, the headline numbers on the CBO/JCT report on the Dream Act are simply wrong.

2 thoughts on “Ripple Effects”

  1. If I'm understanding this post correctly, the increased costs to the government relate to merging portions of the "black" economy into the mainstream economy by turning workers who are currently being illegally exploited because of their being "sans papiers" into legally resident workers who could claim government benefits. On that basis, it seems to me that there's an awful lot of American business people who are breaking the law and collectively reaping many billions of dollars in illegal cost savings by hiring and exploiting "sans papiers". All of the increased costs flow from legalizing the status of some or all of those currently employed here even though they are not in the country legally.

    The question for the Trump administration, however, is how the Donald proposes to (at least in his theoretical ideal) expel all of these people and their families from the country and replace them with native born workers without incurring these same costs? Obviously, a similar result would obtain if Trump were theoretically able to prevent those without papers from being employed.

    If I'm understanding the figures and reasoning from the CBO/JCT as described in this post correction, these are actually costs that the Trump administration actually intends or at least hopes to eventually incur in the name of nativism. So the real objection isn't related to the increase in the deficit, it is that the effort isn't being made exclusively on behalf of evangelical white nationalists.

  2. Wouldn't it be nice if the shiny object of "illegal" Dreamers reaping huge rewards from contributing to the economy legally distracted Fox from advocating for a slow motion overthrow of democracy and the rule of law? Yes, it would be. Unfortunately, people who would seem to have difficulty walking and chewing gum at the same time are nevertheless perfectly capable of attacking America from two (or more) angles at the same time.

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