Distributional Effects of Public Law 119-21

This letter responds to a request for an analysis of the distributional effects of Public Law 119-21, an act to provide for reconciliation pursuant to title II of H. Con. Res. 14, relative to the Congressional Budget Office's January 2025 baseline projections. It builds on analysis provided in the agency's letter dated June 12, 2025.

CBO and the staff of the Joint Committee on Taxation (JCT) recently estimated the budgetary effects of P.L. 119-21. On the basis of those estimates, CBO allocated the effects on revenues and spending to households. The agency also allocated to households the estimated effects of states' responses to changes to health programs—primarily Medicaid—and the Supplemental Nutrition Assistance Program (SNAP).

In CBO's January 2025 baseline projections, households at the top of the income distribution receive significantly more income than households at the bottom. That pattern is consistent with recent history. Both means-tested transfers and federal taxes are progressive—that is, low-income households receive a larger share of their income as means-tested transfers than high-income households do, and high-income households pay a larger share of their income in federal taxes than low-income households do. (Means-tested transfers are cash payments or in-kind benefits from federal, state, or local governments that are typically designed to help individuals and families who meet a test of need on the basis of income and assets.) Because of that progressivity, income after transfers and taxes is less skewed toward households at the top of the distribution than income before transfers and taxes.

CBO estimates that as result of P.L. 119-21, U.S. households, on average, will see an increase in the resources available to them over the 2026–2034 period. The changes in resources will not be evenly distributed among households. The agency estimates that, in general, resources will decrease for households toward the bottom of the income distribution, whereas resources will increase for households in the middle and toward the top of the income distribution.

The distributional analysis of changes to taxes and tax-related outlays is based on analysis done by JCT. That analysis includes most, but not all, provisions of P.L. 119-21. Therefore, the analysis in this letter excludes any tax provisions not allocated in JCT's distributional analysis of the law. Also, CBO's analysis does not reflect the effects of the additional debt-service costs or the macroeconomic effects of the law.

CBO estimates that the budgetary effects of the legislation will affect household resources through four channels over the 2026–2034 period:

• Federal taxes and cash transfers will increase household resources by $3.3 trillion, on net (in 2025 dollars). In particular, changes to federal tax provisions, especially extensions of provisions of the 2017 tax act and limitations on eligibility for subsidies for health insurance under the Affordable Care Act, will affect household resources. Changes to student loan programs will also affect those resources.
• Federal and state in-kind transfers will decrease household resources by $900 billion, on net, primarily because federal spending on benefits provided through Medicaid and SNAP will be lower. Changes to program benefits that states make in response to changes in federal policy will also reduce household resources.
• States' fiscal responses will increase household resources by $11 billion, on net. Those responses consist of the tax and spending changes implemented by states in response to changes to their fiscal position. In CBO's assessment, Medicaid eligibility changes under the legislation will reduce states' spending on Medicaid benefits. Those decreases will be largely offset by the new matching requirements for SNAP, which will increase states' spending. In CBO's analysis, states, in the aggregate, will use the resulting overall reduction in benefit spending to increase spending in other areas and to reduce taxes, both of which will increase household resources.
• Other spending and revenues will increase household resources by $308 billion, on net. The spending and revenues in this category were allocated as if they were public goods. This category includes federal spending on defense, border security, and infrastructure. Those outlays are partially offset by receipts and outlays associated with spectrum auctions and changes to emissions regulations.