Build Back Better Cost Would Double with Extensions
Note (11/30/2021): We have since published an updated analysis of the House-passed bill based on estimates from the Congressional Budget Office. Read that analysis here.
We estimate the House Build Back Better Act includes roughly $2.4 trillion of spending and tax cuts along with roughly $2.2 trillion of offsets. However, the bill relies on a number of sunsets and expirations to keep the official cost down. If the plan's temporary policies were made permanent, we find the cost would increase by as much as $2.5 trillion. As a result, the gross cost of the bill would more than double from $2.4 trillion to $4.9 trillion.
The Build Back Better Act relies on a number of arbitrary sunsets and expirations to lower the official cost of the bill. These include extending the American Rescue Plan's Child Tax Credit (CTC) increase and Earned Income Tax Credit (EITC) expansion for a year, setting universal pre-K and child care subsidies to expire after six years, making the Affordable Care Act (ACA) expansions available through 2025, delaying the requirement that businesses amortize research and experimentation (R&E) costs until 2026, and setting several other provisions – from targeted tax credits to school lunch programs – to expire prematurely.
Excluding changes to the state and local tax (SALT) deduction, we estimate the Build Back Better Act would cost $2.1 trillion as written. We estimate making all of these temporary policies permanent would cost roughly $2.2 trillion, more than doubling the gross cost of the bill to $4.3 trillion through 2031.
Gross Cost of Build Back Better Act (2022-2031)
| Policy | Official Cost | Extension Cost | Permanent Cost |
|---|---|---|---|
| Increase the Child Tax Credit amount for one year | $130 billion | $1.00 trillion* | $1.13 trillion* |
| Expand the EITC for one year | $15 billion | $120 billion | $135 billion |
| Support child care and pre-K for six years | $390 billion | $410 billion | $800 billion |
| Expand Affordable Care Act through 2025 | $125 billion | $405 billion | $530 billion |
| Delay R&E amortization until 2026 | $5 billion | $145 billion | $150 billion |
| Other spending and tax breaks | $1.44 trillion' | ~$100 billion | $1.54 trillion |
| Gross Cost of Build Back Better Excluding SALT Cap Changes | $2.10 trillion | $2.18 trillion | $4.29 trillion |
| Raise SALT cap to $80,000 through 2025^ | $285 billion | $340 billion* | $625 billion* |
| Gross Cost of Build Back Better with SALT Cap Changes' | $2.39 trillion | $2.52 trillion | $4.91 trillion |
| Memo: Deficit Impact Assuming No Further Offsets | $200 billion | $2.82 trillion^ | $3.02 trillion |
Sources: White House, Congressional Budget Office, and Committee for a Responsible Federal Budget.
*These figures assume elements of the Tax Cuts and Jobs Act that expire after 2025 are extended in separate legislation, including the CTC increase and $10,000 SALT deduction cap. Under a stricter interpretation of current law, extending the CTC would cost $1.5 trillion instead of $1 trillion, while extending the SALT deduction cap of $80,000 would cost roughly $50 billion instead of $340 billion from keeping the cap at $80,000 rather than the proposed $10,000 in 2031. 'The Build Back Better Act would also extend the SALT deduction cap (which expires under current law after 2025) through 2031 and raise $300 billion relative to current law; we count this in our offsets in our base scenario and assume this revenue disappears under our "full extension" scenario. 'This cost could be somewhat lower depending on CBO estimates of spend-out rates and immigration provisions. ^Includes the $2.5 trillion cost of making provisions permanent and removes $300 billion of offsets from imposing the SALT deduction cap.
The most expensive provision to extend -- the one-year, $1,000 increase in the CTC for children six and up and $1,600 increase in the credit for children under six – would cost roughly $1 trillion to make permanent (full refundability is permanent in the underlying bill). We estimate that extending universal pre-K and the child care subsidies beyond 2027 would cost over $400 billion on a combined basis. Continuing the ACA expansion, which temporarily extends the American Rescue Plan's insurance subsidy expansions and offers subsidies to those in the Medicaid coverage gap, would cost another $400 billion to extend beyond 2025. Meanwhile, making the expanded EITC permanent would cost another $120 billion over a decade and repealing rather than simply delaying the implementation of R&E amortization, which requires businesses to write off R&E expenses over time instead of immediately, would cost $145 billion.
Incorporate proposed SALT cap relief increases these costs further. The legislation already extends its five-year increase in the SALT deduction cap from $10,000 to $80,000 through 2030 (it sets the cap at $10,000 in 2031). However, this actually represents a $300 billion tax increase on paper relative to current law since the SALT deduction cap and other parts of the Tax Cuts and Jobs Act (TCJA) expire after 2025. Assuming the remainder of the TCJA is extended separately – as we did in the case of our child tax credit estimate – this $300 billion savings would be erased and replaced with an additional $340 billion of costs. Inclusive of this tax change, we estimate extending expiring parts of the Build Back Better Act would cost over $2.5 trillion, increasing the total cost of permanent extension of the bill to above $4.9 trillion.
To be sure, lawmakers may choose not to extend some or all of these provisions. However, if they do, they would need to more than double current offsets in order for the bill and the extensions to be paid for. The alternative would be a substantial increase in the debt.
As written, we estimate the Build Back Better Act would increase deficits by $800 billion over the first five years and a total of $200 billion through 2031 (it would reduce deficits by roughly $600 billion in the second five years). The actual figures could be somewhat lower depending on the Congressional Budget Office’s scores of the immigration provisions and the spend-out pace of appropriated funds. If the legislation were made permanent without additional offsets, it would add nearly $1.5 trillion to deficits over five years and increase deficits by $3 trillion through 2031.
This $3 trillion potential deficit impact includes $200 billion of borrowing from the bill itself, $2.5 trillion from extending expiring provisions, and $300 billion from removing the claimed savings from extending the SALT cap beyond 2025. The estimate effectively assumes remaining parts of the TCJA will be extended on a separate track. If we instead assume large parts of the TCJA are allowed to expire as scheduled, the potential deficit impact of the Build Back Better Act with extensions and without offsets would be $2.9 trillion (extending the CTC would be more expensive and SALT cap relief would be less costly).
The Build Back Better Act relies on a substantial amount of short-term policies and arbitrary sunsets to reduce its cost, raising the possibility of deficit-financed extensions in future years. A more robust and fiscally responsible package would not rely on these gimmicks to achieve deficit neutrality.
Read more options and analyses on our Reconciliation Resources page.
