Democrats are latching on to a new Congressional Budget Office report that purports to show that President Donald Trump’s One Big Beautiful Bill Act would hurt the poor while enriching the rich. The same projection also shows that the vast majority of people would benefit from the legislation, and even while doing so, it ignores the massive damage a $4 trillion tax hike would have on the economy if the bill did not pass. The hardest hit would be the poor.
At the request of House Minority Leader Hakeem Jeffries (D-NY) and House Budget Committee ranking member Brendan Boyle (D-PA), the CBO produced a report last week breaking down the bill’s effect on each decile of households. Two conclusions that Democrats want to ignore are that it cuts everyone’s taxes and that 70% of households would gain money if the bill became law. A typical middle-class household would receive a $1,000 boost in after-tax and after-transfer income, the CBO says.
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Democrats want people to focus on the report’s finding that the bottom three household deciles would end up with less, almost entirely because the bill trims Medicaid and Supplemental Nutrition Assistance Program growth.
The poorest 10% of households currently make $22,868 in pre-tax income each year but receive another $8,463 in non-means-tested benefits, such as Social Security and Medicare, plus a further $9,889 in means-tested benefits from Medicaid, SNAP, and health insurance subsidies. After taking away $1,756 in taxes, this leaves the average household in the poorest 10th of households with $39,464 after tax income transfers.
According to the CBO, if the bill becomes law, the poorest 10% of households would get a tax cut, but it would not make up for their losses from lower Medicaid and food stamp benefits. The slower growth of these programs would supposedly lead to fewer resources overall.
There are three problems with this analysis. First, the CBO assumes states will cut food stamp spending in proportion to federal reductions in spending. However, states are free to keep spending at current projected levels. Second, the CBO assumes millions will lose Medicaid benefits entirely and will not do anything, such as get off the couch and find a job, to keep their health insurance.
The CBO has a terrible track record of predicting health insurance losses. In 2017, it said Republican repeal of the Affordable Care Act’s individual mandate would cause 4 million people to lose their health insurance, including 3 million who would lose their private insurance and 1 million who would lose Medicaid. But the opposite happened. The number of people with private health insurance grew by 3 million, and the number with Medicaid grew by 10 million.
Most importantly, the CBO report ignores the macroeconomic damage that would result from rejecting the OBBB. Such an outcome would mean a $4 trillion tax hike. Recessions hit low-income households hardest; low-income workers suffered unemployment twice the rate of higher-income workers during the Great Recession.
After the Trump tax cuts became law in 2017, wages rose by 5% overall, and the bottom 10% of wage earners saw 50% more wage growth than the top 10% of earners. The CBO did not predict that.
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Not only would the One Big Beautiful Bill Act cut taxes for everyone and prevent a recession, but its passage would mean the wealthy would pay an even larger percentage of tax revenues. Before the 2017 tax cuts, the wealthiest 10% of earners paid 70% of federal taxes, and the top 1% paid 38.5%. If the OBBB becomes law, the top 10% will pay 77.5%, and the top 1% will pay 41.1%.
Not only would everyone benefit, but the wealthiest would pay a larger share of our collective tax bill. It would be a win for everyone.