Cost Estimate for the American Jobs and Closing Tax Loopholes Act

Posted on
May 22, 2010

CBO and the staff of the Joint Committee on Taxation (JCT) have prepared an estimate of the budgetary effects of H.R. 4213, the American Jobs and Closing Tax Loopholes Act, as posted on the Web site of the Committee on Ways and Means on May 20, 2010. CBO and JCT estimate that the legislation would increase budget deficits by about $123 billion for fiscal years 2010 and 2011, by about $141 billion over the 2010-2015 period, and by about $134 billion over the 2010-2020 period.

The legislation would reduce federal revenues by about $23 billion in 2010 and 2011, but would lead to a net increase in revenues totaling about $40 billion over the 2010-2020 period. The revenue effects are the net result of provisions that both increase and decrease revenues. Revenue reductions would result mainly from the extension for one year of various tax provisions that expired at the end of 2009, including the tax credit for research and experimentation expenses, and the 15-year straight-line cost recovery method allowed for specified leasehold, restaurant, and retail improvements. Revenue increases would result from a number of provisions including taxing so-called “carried interest,” altering various rules that corporations use to calculate their foreign tax credits and foreign-source income, and modifying the employment tax treatment of income earned by individuals in professional service businesses.

The legislation would increase outlays by $174 billion over the 2010-2020 period, mostly between 2010 and 2015. The bill would extend benefits under the unemployment insurance program, at a total cost of about $47 billion, and it would extend (for an additional six months) the increase in the federal share of Medicaid costs that was originally enacted in the American Recovery and Reinvestment Act of 2009, at a cost of about $24 billion. The legislation would also amend the system for payments to physicians under Medicare, at an estimated cost of $63 billion over the 2010-2020 period.

Under the new system for Medicare payments to physicians, payment rates would increase by 1.3 percent on June 1, 2010, and by another 1.0 percent on January 1, 2011; under current law, those payment rates would fall by about 21 percent on June 1 and by another 6 percent on January 1, 2011. During 2012 and 2013, a new formula would increase or freeze payment rates to physicians depending on the type of service performed and on whether they participate in a new practice arrangement established by the Patient Protection and Affordable Care Act passed earlier this year. Payment rates would be reduced by about 35 percent in 2014 to approximately the levels they would have been without the changes made between 2010 and 2013. For years after 2014, CBO estimates that payment rates would decline by an average of about 2 percent per year, keeping spending close to the amounts expected under current law in those years.