Distributional Analysis of the Tax Cuts and Jobs Act, as Ordered Reported by the Senate Committee on Finance on November 16, 2017, Excluding the Effects of Eliminating the Individual Mandate Penalty

On the basis of estimates prepared by the staff of the Joint Committee on Taxation (JCT) for the analysis, CBO reports that the combined effect of the change in net federal revenues and spending would be to increase deficits allocated to all income groups of tax-filing units in 2019, 2021, 2023, and 2025 (see the enclosed table). In 2027, that combined effect would decrease deficits allocated to lower-income tax-filing units and increase deficits allocated to higher-income tax-filing units. In reporting those estimates, CBO has not attempted to estimate the value that people place on changes in revenues and spending, which may be different from the actual cost to the government.

Compared with the analysis that CBO provided yesterday, excluding the effects of the individual mandate penalty removes from this distributional analysis the effects on revenues and outlays related to premium tax credits as well as changes in spending for Medicaid, cost-sharing reduction payments, the Basic Health Program, and Medicare.

JCT has estimated that federal budget deficits would be reduced by about $318 billion by eliminating the penalty associated with the individual mandate. Those effects would occur mainly because fewer people would be enrolled in Medicaid and nongroup health insurance: Healthier people would be less likely to obtain insurance; especially in the nongroup market, the resulting increases in premiums would cause more people to not purchase insurance. Lower enrollment would reduce federal costs for premium tax credits, Medicaid, cost-sharing reduction payments, and the Basic Health Program and would increase Medicare spending. Without the effects of the individual mandate penalty, none of those changes would occur.