What do the 2017 tax bills mean for the federal budget?

Tax legislation passed by the House and Senate will change the amount of money the federal government receives in taxes and the amount that it spends on certain types of tax relief. Click below to see the impacts of the different bills on revenue, spending, and the deficit for the next five years.

Methodology

We start with the JCT scoring of the House bill and Senate bill. For each provision, we divide up the revenue score into the following general revenue categories: Individual income tax, corporate income tax, payroll taxes, estate and gift taxes, and excise taxes. Furthermore, the outlay portion of the tax provisions are counted as spending changes.

This division was done as follows:

First, we identify provisions that are exclusive to estate and gift or excise taxes.

Second, those provisions that are not estate and gift or excise taxes are divided into the following categories: outlays, payroll taxes, corporate income taxes, and individual income taxes. We subtract the outlay portion first and then the payroll tax portion, both based on the information provided in the addendum of the JCT revenue estimate publication. The outlay portion was counted on the spending side (right side of the chart) as a change in refundable tax credits. The payroll tax is estimated using SECA interaction and off-budget amounts with an adjustment for the Medicare effect that is considered part of the on-budget amounts. This adjustment is done by multiplying the off-budget amount by .029/.124. The payroll tax provisions were a very small portion of the overall bill.

Third, after subtracting the outlay and payroll portion of each non-estate and gift/excise tax provision, we divide the residual into individual income taxes and corporate income taxes. Many provisions fall 100% in one of the two categories. For example, provisions in the individual tax reform section are all assumed to affect the individual income tax collections, while virtually all provisions in the international tax reform section are assumed to affect corporate tax collections.

The business tax reform section is where some additional work to divide between corporate and individual tax collections is necessary. Some business tax provisions are assumed to affect either income or corporate taxes exclusively. For example, we assume that the reduction in the corporate income tax rate only affects corporate income tax collections while provisions affecting partnerships only affect individual income tax collections. For most business tax provisions, however, there is some portion that affects the taxation of so-called pass-through entities that pay taxes only in on their individual tax forms (i.e. 1040) and some portion that affects c-corporations. When possible, we use a corresponding JCT tax expenditure estimate for the provision that provides the breakout of individual versus corporate taxes. In instances where an estimate is not available, we use IRS data broken out by legal form of organization (sole proprietor, s-Corp, partnership, c-Corp) to divide the tax provision’s score between individual income tax collections and corporate tax collections.

Finally, we use the CBO estimate of the effect of the bill on net interest on the debt to add that additional spending to the spending side of the diagram.

For the final conference legislation, until CBO releases a debt interest score, we used CBO’s previous debt interest score on the original H.R. bill to create an assumed interest rate for each year. We will update the data once CBO releases an official net interest on debt figure.

For the Senate bill, we do not calculate effects of the repeal of the Affordable Care Act individual mandate penalty. The projected budget we use from the Office of Management and Budget assumes the repeal of the ACA and includes budgetary effects associated with the repeal. Including effects of the repeal would effectively double count what the OMB budget projections already expect.