Estimated Budgetary Impact of Two Versions of the American Jobs Act

October 7, 2011

This afternoon CBO released a cost estimate for S. 1549, the American Jobs Act of 2011, as introduced by Senate Majority Leader Harry Reid on September 13, 2011. That legislation corresponds to the plan put forth by President Obama. We also released a cost estimate for S. 1660, the American Jobs Act of 2011, as introduced by Senator Reid on October 5, 2011. Senator Reid’s alternative bill, S. 1660, includes the same tax cuts and spending increases as S. 1549, but it offsets the budgetary impact of those provisions in a different way, as described below. Those estimates represent joint work by CBO and the staff of the Joint Committee on Taxation (JCT).

CBO anticipates that enacting either bill could have a noticeable impact on economic growth and employment in the next few years. Following long-standing Congressional budget procedures, however, the estimates released today do not address the potential budgetary effects of such changes in the economic outlook.

What Is The Impact of the Bills on the Federal Deficit?

CBO estimates that enacting the President’s plan would increase the budget deficit by $288 billion in 2012 and decrease deficits by $3 billion over the 2012-2021 period. That estimated deficit reduction of $3 billion over the coming decade is the net effect of $447 billion in additional spending and tax cuts and $450 billion in additional tax revenue from the offsets specified in the bill.

CBO estimates that enacting Senator Reid’s alternative bill would increase the budget deficit by $285 billion in 2012 and decrease deficits by $6 billion over the 2012-2021 period. That estimated deficit reduction of $6 billion over the coming decade is the net effect of $447 billion in additional spending and tax cuts and $453 billion in additional tax revenue from the offset specified in the bill.

What Tax Cuts Would Be Provided Under the Bills?

Both bills would reduce payroll taxes for employees and employers. Both bills would also provide businesses with accelerated deductions for the costs of certain investments. CBO and JCT estimate that these provisions in both bills would reduce revenues by an estimated $271 billion over the 2012-2021 period.

What Additional Spending Would Be Provided Under the Bills?

CBO estimates that both bills would increase spending by a total of $175 billion over the 2012-2021 period. More than 80 percent of that total spending would occur from 2012 through 2014. Specific amounts of funding include:

  • $50 billion for programs administered by the Department of Transportation, including $36 billion for highway and transit construction and $14 billion for programs to build rail and aviation projects;
  • $10 billion for a so-called infrastructure bank, the American Infrastructure and Financing Authority, which would provide federal loans and loan guarantees to certain transportation, water, and energy infrastructure projects. CBO estimates that the funding would be sufficient to support $60 billion to $100 billion in loans;
  • $44 billion as the estimated cost of extending emergency unemployment compensation (EUC) and special provisions for extended benefits for one year and financing reemployment services for people who receive EUC;
  • $30 billion for grants to states to pay salaries and other related expenses for employees in early childhood, elementary, and secondary education; and
  • $30 billion for grants to renovate and repair elementary and secondary school buildings and community college facilities.

How Would the Tax Cuts and Additional Spending be Paid For?

S. 1549, the President’s plan, includes a number of revenue-increasing provisions, or offsets, that would begin in calendar year 2013. CBO and JCT estimate that those provisions would increase revenues by $450 billion over the 2012-2021 period. Specifically, the bill would:

  • Limit the extent to which taxpayers with adjusted gross income above certain amounts ($200,000 for single taxpayers and $250,000 for married taxpayers filing jointly) can reduce their tax liability through itemized deductions and certain other deductions and income exclusions;
  • Tax as ordinary income, rather than as capital gains, a form of compensation called carried interest, which is related to investments; and
  • Eliminate various tax provisions related to oil and gas production. 

The tax offsets in S. 1549 would not go into effect if legislation emanating from the Joint Select Committee on Deficit Reduction is enacted that exceeds $1.65 trillion in budgetary savings. The bills also would amend the Budget Control Act of 2011 to increase the target for 10-year savings from legislation proposed by the joint select committee from at least $1.5 trillion to at least $1.95 trillion.

S. 1660, Senator Reid’s alternative bill, replaces the offset provisions in S. 1549 with a surtax of 5.6 percent, starting in 2013, on a taxpayer’s modified adjusted gross income in excess of $1 million (or $500,000 in the case of a married individual filing a separate return), indexed for inflation. JCT estimates that this surtax would increase revenues by $453 billion over the 2012-2021 period.