Moody's Talks - Inside Economics - Reconciling Reconciliation

Episode Date: June 10, 2025

Sharon Parrott, President of CBPP joins the Inside Economics team to consider the big package of tax and government spending provisions making its way through the legislative process. She explains why she’s not a fan, from its implications for the nation’s already dire fiscal situation to its hit to programs benefitting lower-income Americans, such as Medicaid and food assistance.Guests: Sharon Parrot - President of the Center on Budget and Policy Priorities and Justin Begley - Economist and U.S. fiscal policy SME, Moody's Analytics  Additional resources from Center on Budget and Policy PrioritiesBy the Numbers: House Bill Takes Health Coverage Away From Millions of People and Raises Families' Health Care Costs2025 Budget Impacts: House Bill Would Cut Assistance for Children, Raise Costs for FamiliesHouse Republican Reconciliation Bill Would Hard Rural Households, Communities, and Economies Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s AnalyticsFollow Mark Zandi on 'X', BlueSky or LinkedIn @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics, and I'm joined by my trusty co-host, Merced, Mercedina Talley. Hi, Marissa. Hey, Mark. How you doing? Where's our other co-host? Still in Italy?

Yes. I think I'm going to be saying this in Italy. Lucky man. It's a nice way to spend your June in Italy every week. Yeah. Have you been invited to his time home? No, not yet. Really?

What's that all about? Exactly. Yeah, really. I think we, you know, co-host deserve, you know, at least some benefit here. Yeah, no? Yeah, we could do an Italian podcast, you know. We could do a live from Italy. And we'll have Moody's pay for it.

How about that? More than willing to do that, yes, if anyone from Moody's corporate is listening, we'll happily take that. Right, right, right. And we got Justin, Justin. Hi, how's it going? I'm back. I think I'm going to take over this time. I've been out a lot recently.

So I think I'm going to come in with a care and take over. Yeah, you've been on quite a bit. Thanks for, thanks for joining us again on short notice, too. Thanks for inviting me. Dr. DeReedy's bailed on us. And so, you know, we got to get a strong voice in here. Oh, hi. I hope that's what this is.

It absolutely is. Yeah. And you're a fiscal policy expert, and that's key because we have Sharon Parrott visiting us. Hi, Sharon. Hi, how are you? Good, good. Sharon is the president of the Center on Budget and Policy Priorities. Good to have you back.

Nice to see you again. You know, I was trying to remember back. Do you remember when you were on last? I can't remember. I think it was the rescue plan. Oh, the American Rescue Plan. Yeah. I think it was sort of in the later, maybe after the pandemic peaked and we had some

data on impacts of the rescue plan. Right. And the timing now is particularly propitious. Mercy know that word propitious? I bet Justin doesn't know that word. I don't know that I've heard it pronounced. Sounds like an SAT word. Oh, maybe, that's my, you know, I say these big words and I don't know if I'm

Well, I don't know. Now you have me one time. Well, how would you pronounce it? No, maybe you're right. Propitious. Sharon, well, how would you pronounce it? Propitious? I think you're right.

Yeah. Okay. It is an SAT word. Yeah, absolutely. A.T.S.E.T. Do people take SATs anymore? I don't know if lost track. They do.

They do. They do. It's been a long time. Yeah. Well, we were chatting a little bit before we start. started about screens. Does everyone here have like a big screen, one big screen or two big screens that you work off of? You have three.

I have two big ones. I have three total. Yeah, I have my little laptop and then I have two big screens. Now, did Moody's pay for those or did you buy those yourself? Yeah, Moody's paid for them. Oh. Justin, do you have, I visited Justin with multiple, many screens. I have two.

Yeah. But I do have two other monitors that I couldn't figure out the one. wiring for my docking station. I would love like a trading death style view. You know, get like six screens up there. But I can't figure out the wiring. So I'm not sophisticated enough for it. Well, you should hire someone and charge it to Moody's since we're charging everything else to Moody's. I didn't even know I could do that. I heard before I did I don't know. I don't know if you can do that or not. I'm just, you know, I'm just suggesting. Well, we'll put in a ticket. I'll approve the expense. Okay. I'm going to quote you on that.

Okay, very good. And Sharon, I know you have multiple screens, at least one. I have two. I have two. So like I'm the only person on the planet with no screen. I mean, I work right off my laptop. Oh, gosh, it's so tiny, though. How do you do that? I can't work. I can't work on my laptop at all. Really? It's so hard. Yeah, when I'm traveling and I have to do it, it's really difficult. So you're saying to me, if I got a screen, my productivity wouldn't improve? I think it might. Really? Ooh. And perhaps accuracy, because you can really forecast accuracy. Wow. Which is actually part of productivity, though, right? When we think about it. But it's a good point. I go for the accuracy.

That would be a win. Well, it's really nice to have you. You know, I was approving your website in anticipation of our conversation. I didn't realize how many folks work at CBPP. It's a large organization. How many folks do you have? We have about 160. Yeah.

A lot of times people only know one part of our work, but about half of our work is actually state-focused. And so we're doing work both on federal fiscal policy and a host of policy issues related to low- and moderate-income people, but we also have a lot of our work that's focused at the state level where we work in deep collaboration with organizations and experts on the ground in states. So we don't air drop into West Virginia and say, we have a great idea for you. But we have just a phenomenal group in West Virginia that is, you know, that's their home.

And they're incredibly talented. And we do a lot of work with them as well as groups all over the country. Wow, yeah, I didn't realize that. So we're only, the economics team at Moody's is just a little bit larger than you, but not much larger. I think we're, what, 175, 180? something like that around the world. But that's very impressive. Well, I thought this would be good timing because of the so-called reconciliation legislation making its way through Congress. That's that big tax spending bill that the Congress is working on and is, you know, the subject of great

debate all over the place. And I know CBP and you have done a lot of work in that area. I thought maybe we can just begin with an open-ended question. I hesitate a little bit because I know I can sense the answer, but what do you think of this piece of legislation broadly? What's your view? Yeah, I think this bill fails on pretty much every metric. It fails fiscally, it fails economically, and it fails the people in communities that, quite frankly,

the president and many members of Congress promised to serve in the last campaign. So it features very large tax cuts that are skewed to higher income people. They are very expensive. And at the same time, the bill includes very deep cuts in health coverage and basic food assistance so people can just afford groceries, as well as a lot of cuts in clean energy and clean energy innovation, some increases in funding for defense and homeland security, that homeland security is spending really focused on detention and deportation. And when you wrap it all together, what are you left with? You're left with much higher deficits. As scored by the Congressional Budget Office, we're talking about $3 trillion in increased deficits. But if you take

away all the timing gimmicks and all the faux temporary provisions, that goes to $5 trillion. you're left with 16 million people that lose health coverage over the course of by 2034. Those are people that are losing both Medicaid as well as coverage through the Affordable Care Act marketplaces. You're left with millions of people that are no longer getting basic food assistance who won't be able to afford groceries, including 2 million kids. and the higher deficits over time, and this is obviously your area of expertise, but are very likely to be a downward pressure on growth and an upward pressure on interest rates. And so when you take that all together, what you have is a bill that very high-income people do well under and everybody else does pretty poorly under and an enormous amount of harm and damage,

as well as a disinvestment from children who are our future labor market. And so I think it is highly misguided. I think it's very damaging and it's very distressing to watch. The last thing I'll just add is that the public does not support this agenda. So poll after poll after poll finds that this legislation is underwater when you just ask people without a lot of background about the bill, already it has it has majority of people disapproving. And when you provide pretty plain-gene explanation of what's in the bill, it gets less and less popular.

And so not only is it sort of bad from my perspective on a whole host of substantive areas, but it's not in keeping with what the public supports. Got it, got it. There are a lot to unpacked there, which is exactly what I wanted to do. Maybe we'll go from the 30,000 foot level down to the 10, maybe down to the street level. And at the 30,000 foot level, all these estimates around the budgetary effects, there seems to be all kinds of estimates floating around, $2.5 trillion, $5 trillion, costs, that kind of thing. Justin, do you want to just quickly give us a sense of, you know, where these budget estimates are coming from and how you think about that?

the budgetary costs? Sure. Yeah. So, I mean, of course, the gold standard is the Congressional Budget Office. They're coming in around $3 trillion. That would include, I think, about $600 billion in increased interest expense that comes along with the deficit increase, and then about $2.4 trillion just from the bill itself, not including interest. If you were to extend some of the temporary measures like the no tax on tips and overtime and higher senior deduction, and auto loan interest deductibility, along with some of the business provisions that are set to sunset at the end of the decade, you end up with something just over $5 trillion. So those are kind of, I think, where some of those differences are coming from. And these are all static scores.

So it does not account for some of the more dynamic economic effect, such as, for instance, if you materially cut government spending in the near term, that could have a, you know, could put downward pressure on GDP. and slow growth. But then similarly with tax cuts doesn't take into account some of the stimulative impacts that tax cuts could have. Now, also there's another question out there as to, you know, how we should be thinking about this, whether from a current law perspective where we consider the baseline where all these things are expiring in the TCJA in 2025 versus a current policy baseline where, you know, we assume kind of status quo over the next 10 years or so as we're scoring this thing and considering the macroeconomic effects. That's largely how we're thinking about it. So the two and a half trillion, the three trillion, the five trillion, that's relative to current

law. That's right. And that's what the CBO has been told to do, current law by lawmakers. They set the rules. In current law, in current law, one of the major. provisions is the TCGA tax cuts for individuals expires at the end of this year. So that was passed in 2017. That's been in place for the since then and under current law that expires. So relative to that, that we get these budget, these budget impact estimates. That's right. Right. So compared to current policy, so if I just assume the tax cuts remain in place and I don't change current policy, then the numbers become smaller. So in terms of the actual legislation, it's probably close to zero, right, in terms of the budgetary impacts?

Yeah. So over 10 years, at least from our count, our estimates would suggest that fiscal policy would become slightly restrictive over the next 10 years on a current policy basis. Okay. But of course, if I allowed all of the tax cuts in this new piece of the reconciliation legislation that expire after. for a few years to continue on, which seems like prudent budget making because it's very difficult to let tax cuts expire as we're finding out. The cost would be something like $2.5 trillion over 10 years, something like that. Yes. Okay. Exactly. Okay. So Sharon, is that roughly right? Is that kind of how you're thinking about it? Yeah. I mean, I think that it's important to understand

that this is not a straight extension of TCJA. So they have added tax cuts on top. And they've added some that are more for higher income people, a permanent increase in the pass-through deduction that was already very large, a permanent increase in the estate tax exemption, which was already indexed. And so this is on top of that. Those are permanent. They've done a set of things that are a little bit more distributionally in the middle, like no tax on tips, a very small increase in the child tax credit that leaves out most low-income kids. those things are temporary. And then there is the continued gimmicks around some of the business provisions that were actually pay-for's in TCJA that helped them make TCJA look less expensive

than they really wanted it to be because they never wanted those tax increases to jump in. So I think it's really important to understand that the tax cuts were made, because they were so expensive, they couldn't do it under the reconciliation rules. And they claim that they were just not as expensive as they really were. And now they've come back to say, some members have come back to say, no, no, no, it should be free to extend all those things that we didn't make permanent in the first place because that's already current policy. I think the reality here is that the tax cuts, the TCGA tax cuts, failed to deliver in a whole range of ways.

There was a lot of promised economic growth and investment and very little evidence that that happened. And now people are coming back, making, again, outrageous claims about how important these tax cuts are and sort of trying to say, well, we have to continue them because the world will fall apart if we won't. If we don't, which I actually think is wrong on its face. and there is certainly ample room to scale them back. None of that kind of consideration is in this bill. Got it, got it. Now, the kind of the simplistic way I think about it, and still we're here at the 30,000 foot level,

talking about the budget and the budgetary effects, and we're going to drill down to all the other things you began with around distributional effects and so forth and so on. But the way I think about it is if this legislation that is in Congress now has passed roughly as it currently is, and it feels like that, there's going to be changes and tweaks and everything else as it goes through the Senate and signed by the president, but it feels like it's going to roughly land here.

The deficit, the nation's deficit, is going to be about 6, 7% of GDP, which is kind of sort of what we had in this current fiscal, we've been getting, you know, 6, 7, 7% of GDP. So that's not going to change. That's very large, particularly in the context of a full employment economy. When you're at full employment, you'd expect a deficit to be a lot lower. What happens when you go into recession? And at some point, there will be recession. The other thing is that of that 6%, just to make the arithmetic easier, 3% of interest payments,

so you're still left with a so-called primary deficit of 3%. None of that changes. That all remains the same. That's what's going to happen here if that legislation passes. And if you do the arithmetic, it means that the nation's debt to GDP ratio, publicly traded debt to GDP ratio, will go from close to 100%. that's roughly where we are to 130 percent, you know, 10 years from now, 10 years. And then you can do your own forecast after that and see, see where the direction of travel is.

That feels like a problem to me. That feels unsustainable. Would you concur with that, Sharon? Is that something you worry about? I do worry about it. I'll just say that I've seen estimates that in 2034. the deficit out as a share of GDP, if you assume all the things that are temporary in this bill are permanent, actually are closer to 8%, 7.8%.

And so... You mean the deficit out in 2034 would be close to 8% is what you're saying? Not 6, 7, 8, closer to 8. Okay, yeah. Almost 8% of GDP. So I think that there's two issues. one is the deficit is the debt and deficits and therefore debt are rising they're rising as a share of the economy that is ultimately unsustainable. I think the second thing is like what are we getting for it? Like this is not investment that is high payoff investment. And the third thing is that these are

deficits in good times and we know that bad times will come. And so they will go higher and ultimately that will push up debt and deficits also. I think that, and there have been some macroeconomic, we should just say there have been E.L. Budget Lab, Penn Wharton, Tax Foundation, others have done macroeconomic analyses and found that if some have found that actually when you do the macroeconomics, the deficit is worse because of the interest rate feedback. Some have found it's a little bit better, but let's just say they don't pay for them, by any stretch of the imagination.

And so I think the problem is really twofold. Like one is it's pushing up debt and deficits in ways that certainly seems unsustainable, though we should admit that economists have been missing the mark on what is unsustainable for a very long time, and that is a challenge, right? But the other is like we're getting so little. You're referring to like Reinhart Rogoff, 90% debt to GDP was going to be the tipping point kind of argument. Well, you know, it's almost the tipping point.

all the time and that and that is a challenge and yet there has to be some limit out there right um but it's also right like it's really different to go into debt for high impact investments than for tax cuts that uh we have very little evidence are doing much of anything uh and cuts that inflict enormous amounts of pain and human harm on the people that most uh unable to afford it. And so I do think it's really the combination of this kind of macro economy, what are, what are these large debts and deficits going to mean in the future, and that we're not getting anything for it. These are not smart investments that are going to make it sort of worth it. Yeah. So, and I think we talked about this last time you're on, I vaguely remember, but I just

want to talk about it again. If I go back to the last time the nation was in balance, meaning deficits were basically zero, and that's the GDP was stable. That was the year of 1999 or 2000, you know, something like that. And in that year, I'm making these numbers up, but rough orders of magnitude. Revenue, if you add up all the revenues the government collects, divide by GDP, it was 17% of GDP. Spending was 17% of GDP. Today, tax revenue or revenue in general, in all revenue added up, is still 17% of GDP. but spending is 23% of GDP.

That's how you get to the 6% that's its deficit of GDP. Now, of course, three percentage points of that is just interest. And that, you know, let's take that off the tail because that spending and taxes have contributed to that. So we're down the 20. So we're still at 20%. Spending is still 20% of GDP compared to 17% back in 2000. So if you kind of look at those numbers, you say, if I want to get back to balance in, you know, presumably that's where we want to be with a primary deficit of zero in a full employment economy,

it's got to come out of spending, not out of taxes. How do you respond to that? So first of all, the last time we were in balance was in the 90s. In the 90s is when actually revenues rose and actually reached 20% of GDP. And so actually when we were in balance in the late 90s. It was 20%. It was 20. They had revenues at they, they were 19 and then they, I like to say, They kissed 20 for a year. And they reached 20% of GDP. And what happened, right? We had the Bush administration come in and we did the first round of very large tax cuts.

We did the Bush tax cuts and then we did the Trump tax cuts in 2017. And that took revenues back into the 17% of GDP. Now, the 20% of GDP, there was the dot-com bubble. like there were some other things that got it to 20% but we did some looking actually in preparation for this podcast to say we hadn't done

the tax. You see that people do work to come on this podcast. That's pretty cool. As well they should. As well they should. Yeah. So if we hadn't done the tax cuts in 2001, 2003 and then 2017 and had it made them kept extending the 2001 tax cuts, right? If we hadn't done

those rounds of tax cuts, revenues as a share of GDP would be between 19 and 20% today. And if we had not done that, our interest, if we had not done that, our interest costs would be much lower today because we wouldn't have racked up as much in deficits, right, even with the same level of spending. And so, right, primary outlay, program outlays are about 20% of GDP, as you said. The interest costs it above that. And so if we had revenues that were about 20% of GDP,

between 19 and 20% of GDP, our deficit situation would be entirely manageable. And we'd be roughly in primary balance, right? And right, that would be a sustainable level of debt. And it wouldn't be a, not only would it, I don't think we're in a crisis today, but we wouldn't be seeing a crisis on the horizon. Got it. The other thing I- Really important to not over, to not underestimate how important these rounds of tax cuts have

then. The other thing that's really important to remember is that major spending initiatives over that time period were primarily paid for. So if you think about the Affordable Care Act, it was paid for. It was not deficit financed. And the Inflation Reduction Act was expected to be paid for there. Some costs came in higher, but there was a commitment and an effort to pay for it based on the CBO best CBO scoring at the time. And so I think it's really important to think about what does the American public expect from government? And they don't expect government that can be funded at 17% of GDP.

They expect government that is about, you know, at least what the government is now. And when you ask people, there's a whole series of things that our government doesn't do, that other governments do do in other countries that are quite popular here, right? Like paid family leave is just one example. And so a deficit is a mismatch

between revenues and spending. And when people say, well, we have this high deficit and therefore the only answer is we have to cut spending, usually focused on the lowest income people with the lease power. That is just a misunderstanding

of the basic arithmetic that there are two sides to this equation. And if we had not done, done the two rounds of tax cuts in 2001 and 2017, we'd be in a completely different situation and a much healthier fiscal situation. I think the other argument, I'm just curious, something I've said, and I'm just curious if you agree, is actually spending as a share of GDP should be higher because of the aging of the population, right?

I mean, if you just give the same Social Security, Medicare, Medicaid benefits to individuals, the fact that we're older means that we're just going to need to spend more as a share of GDP. So if you just simply keeping benefits to him, right? I mean. Oh, that's exactly right. And they were perfectly predicted. So this is the other thing. Perfectly predicted, yes.

Right. Like, it's not like we are now surprised that we have more older people. We have perfectly predicted the bulge from the baby boom generation. I'm surprised I'm old. I have to tell you, Sherry. Like I said, what the heck happened? I used to be like Justin. Yeah, I was strapping young man.

Look at that guy. And when you were Justin's in. you knew that the baby boomers would cause an increase in spending. I did know that. Yes, I did know that. And that was me. Yeah. So back to 2001 and 2017, when we did these big tax cuts, we did them with perfect knowledge that spending was going to have to go up. There would be upward pressure because of the aging of the population and the need to maintain our commitment to things like Social Security and Medicare. And so it makes, look, you know, I have been doing this a very long time. I push back against those

rounds of tax cuts. I do have some other wins in my career, but those were really- I was going to ask. They didn't feel like I would be bragging about that. But, you know, those rounds of tax cuts have really put us in a much more difficult position and a much more difficult. And they have also exerted real downward pressure on some of the investments that the country should be making in people and the economy to also undergird both growth, but also shared prosperity. And so those big tax cuts have hurt us in both ways. Yeah, the other thing I just want to get, because you said this, I just want to flesh it out a little bit more, is there is the proponents of the legislation, argue this is going to

generate a lot of growth. That's common refrain you hear, you know, the supply side kind of arguments that lower tax rates, particularly on the corporate side, will generate all this investment, raise productivity and long-term economic growth, and therefore lots of revenues and, you know, help, if not completely pay for the tax cuts themselves. Any comments on that argument? Well, the research I've seen. That just because something said repeatedly doesn't be. more true. This is something that's been said. It was said in 2001. It was said in 2017.

Obviously, they didn't pay for themselves. That's why revenues fell back to 17 percent of GDP. And it's not going to be true this time. And you can see that it's not going to be true by estimates across the board. So joint tax is not saying that that's true. The Joint Committee on Taxation, which is really on the tax side. Yeah. Just for the listener, there's a CBO on. on the tax side, the nonpartisan group. Yeah. Right. So it's called the Joint Committee on Taxation.

You can see it in Penn Wharton. You can see it in the Yale Budget Lab models. You can see it in Tax Foundation. And so, you know, we can keep, if we keep believing the lie, we will keep making the same mistake over and over again. And so, you know, I will say that, like, it's important to remember that the corporate tax cuts were one of the few things that were made permanent in 2017 when TCJ was passed, right? So they did a bunch of stuff and they made a bunch of it temporary. And the one thing that they

made permanent that they found gibbics and other things to pay for was an enormous cut in the corporate rate. It was a much bigger cut in the corporate rate than actually corporations were mostly asking for. They were quite surprised with how aggressive the rate cut was. There's not good evidence. There's really very, the best evidence is that those corporate rate cuts haven't made very much difference at all. And so they were very, very expensive. Now, one of the things that this bill does is try to give some new, basically some new tax breaks to research and experimentation and other kind of investment. that's quite expensive to do, especially if you do it without gimmicks, you could pay for that, right?

Like you could decide that our tax code would be more efficient if we had a little bit better tax treatment on the investment side, right? And you could do that, but you could pay for it, right? You could pay for it by just taking back some of those enormous corporate rate cuts. So there are lots of ways to go that could have made a bill. much more responsible, but right now, as of now, they haven't taken those avenues. Yeah, you know, back in 2017, when we were debating the TCGA, we actually, Moody's, our group, did some work here, and we estimated that that legislation would raise GDP growth over the 10-year period by seven basis points per annum. And I remember this table in the Cable, and the, I remember

this table in the CBO document showing, you know, all the estimates, and we were kind of right in the middle. So seven basis points means, you know, seven-tenths of a percent of GDP, you know, 10 years out, 10 years out. So that kind of gives you a sense of magnitude. And that, those, that was with the, as you said, massive cut in the marginal corporate tax rate. You know, it was, you know, what was it, 35 percent and it was lower to 21 percent. So that, that's where you got the juice. And here we're not, in this legislation, there's a lot, there's more tax. cuts, but we're not talking like anything on those orders of magnitude. So that kind of gives you context in terms of at least our expectations for the growth benefits of this or not. Okay.

Anything else on the kind of the 30,000 foot level budgetary effects? Mercer, anything else you want to point out that we didn't discuss before we move on? Anything? I don't think so. Okay. Okay. All right. Let's now go down a level kind of 10,000 foot. Let's talk about the distributional facts, meaning who wins and who loses, you know, when you look across the income and wealth distribution. And, you know, I think that feels pretty clear. You can see that in the CBO estimates. You can see it in budget, BL Budget Lab. We haven't done any work in this area. But, you know, the estimates, all the nonpartisan estimates are pretty clear. The benefits clearly go to folks in the top upper parts of the income distribution and lower income households get hurt.

But so I think we can stipulate that. Unless are you hearing arguments on the other side of that? Sharon, or does that the proponents of the bill say anything about that? I haven't followed, you know, what the pushback might be there. I mean, I think that proponents don't come out with their own distribution, but they do say things like, no, no, no, we're not actually hurting anybody. We're just cutting ways for an abuse, which we can talk about that later. clearly not what's happening. So they try to like say, no, but the cuts aren't really going to hurt

anybody. And I mean, again, CBO's estimate is 16 million people lose health coverage through a combination of the bill and its failure to extend the premium tax credits, which we can again talk about. So they don't put out their own distribution, but they try to basically dismiss the harm at the lower end of the income distribution that will happen. And they continue to say, you know, they continue to make claims around that are just trickle-down claims, right? I mean, that's all, I mean, all paying for itself is a trickle-down argument. So they do do that. I think the other thing, and you all obviously have been talking about tariffs a lot on your show, but it is also important to remember that the tariffs have also a very regressive distribution. And so when you combine the

effects of the agenda. I think about it as like the economic agenda writ large, right? You have big tax cuts. You have cuts in things like Medicaid and food assistance and college aid. That's clearly hurting people at the lower end of the income distribution. And then you have tariffs that are quite regressive with lower and middle income people paying a much larger share of their income in tariffs than higher income people that spend less on goods and services. Less on goods. And so, you know, the joint distribution is particularly shocking, and we've done some work to kind of combine distributions. Yeah, Justin, have you heard any pushback on this distributional question? I mean, what would the proponents of the legislation argue on the distributional side?

Have you heard anything? I think I've heard two arguments that I've been put forward. The one is on the tax side, which is that the JCT released shortly after the House Ways and Means released their version of the initial tax proposal, a distributional analysis. And the top 10 or so percent of income earners pay three quarters of the taxes. And so it's like that's not really going to change in this bill. It's going to be roughly the same. And those are the bottom, you know, 20 percent or so who pay negative net tax. are going to continue to pay negative net taxes.

So that's a very broad argument. Like, that's not getting into the nitty-gritty specifics, but it's, you know, at the very least, something that can be said. And then on the other side, on the more Medicaid side, I think the most common refrain is that, well, we're targeting able-bodied and non-parent's prime-age workers that are, you know, kind of able,

that are not working 80 hours or more a week, but that could theoretically be working 80 hours a week. And so I think I've heard it phrase like, if you lose your Medicaid coverage, you choose to lose your Medicaid coverage, otherwise work 80 hours. So that's, I should say, this is not something I am,

I'm committing to you on either side. Those are just two things that I've heard. Right. Sharon, any response to those comments? Sure. And we can take them in turn, right? So if you look at the distribution, so CBO is going to do a full distribution

this week. Right. So I feel like I'm previewing it, although by the time this post, I don't know if it'll be out or not. They did do- No, we're going right up after, you know, as soon as we're done this, this is news. This is going right up. So very shortly, sometime this week, CBO will be releasing a distribution of the full bill.

They released an initial distribution that looked at taxes and the snap and the cuts to SNAP, which is what we used to call food stamps, and Medicaid. And they just focused on the top decile and people with incomes in the lowest 10% of the income distribution. And you see across years that people at the top are gaining income and people at the bottom are losing. And that's at the extremes, right? So the lowest 10%, people with incomes at the lowest 10% are people typically below the poverty line, very low income people. And so, that's the basic story. When we get the full distribution, and again, Yale and some others have done full distributions, you'll see that there will be either net losses or very small benefits at the

middle to lower parts of the distribution and much larger gains at the top. And both those losses and those gains are both real. And I think that's part of the issue is like I think there's a lot of attempt to say, no, no, they're not real. And when you combine it with tariffs, so we took various distributions and added the distribution of tariffs from the Yale Budget Lab. And then you see that the folks with incomes in the bottom 20% of the distribution. So roughly speaking, people roughly below the poverty line, maybe a little bit above, but quite low income people, are losing jointly over $1,300. So, right, the tariffs are a major hit, as are the cuts and things like Medicaid and SNAP.

So if we want to, we can, do you want to move into the conversations about what those cuts are and who they? Yeah, I thought that now we're getting down to the 5,000 foot level. So, yeah, and I know you, CBP does a lot of work on Medicaid and particularly SNAP. That's kind of, let's how I think you've done so. much good work there. Maybe you can talk about those programs and exactly how things are changing under this legislation. Yeah, happy to. And just to be clear, there's actually cuts in health coverage that are not only Medicaid, but also ACA. So the part of the ACA that provides financial assistance for people in the marketplaces. Most people that purchase coverage in the ACA

marketplaces get financial assistance. So let's start with SNAP. So ACA Affordable Care Act, that's Obamacare, just for folks who don't know. Yeah. Yeah. Okay. And there are different parts of the Affordable Care Act. So part of the Affordable Care Act is the expansion in Medicaid, and part of the Affordable Care Act is the creation of marketplaces with financial assistance.

There's lots of other things, but those are the two big ways that people gained coverage. And just to level set for a moment, we have about 20 million people who get coverage through the Medicaid expansion and more than 20 million people who get coverage through the ACA marketplaces, most of those people get financial assistance. We have 40 million people who get help each month buying groceries through the SNAP program. People typically have to have incomes that are either below the poverty line or just hovering around the poverty line. So these are people with quite low incomes. So let's start with SNAP. The SNAP program is cut by $300 billion over the, between now and 20, 2034. It's not quite a 10-year bill. It's scored through 2034. So that's

$300 billion, that's about a 30% cut. The average per person per day benefit in the SNAP program is $6.20. cents. So the average SNAP recipient receives $6.20 per person per day on the program. So I just, in case anyone thought that it was a lavish program with very large benefits, it is not. It is, the benefits are really important and make the difference in people's ability to buy groceries, but they are low. And so overall, the program is cut by 30%. The cuts are really done in two ways. One is just a flat out cut in federal funding. And then the feds say to states, you fill it in. And if states can't backfill for those dollars, they have two choices.

They can try to make their program smaller so the share that they have to pay stays the same, but it's now on a smaller program. So they can make their program smaller by cutting people off, maybe by cutting benefits, although it's not clear. clear, they would mostly have to cut people off the program entirely. So they can try to shrink their program to make their cost share lower, or they could opt out of the program entirely. And so we could In no state, I mean, every state has some form of has snap now, right? Because it's a federal program. Every state has a snap program today. But the federal government pays 100% of the benefit cost and the administrative costs, the cost to run the program is split between the federal and the state government. Here, states would be under the House bill, states would have to spend between

5 and 25% of the cost of the program. And if they couldn't come up with that money, they could try to make the program a lot smaller so the amount they would have to pay is less or they could opt out of the program entirely. So just 40 million people rely on SNAP every month. to get groceries, and this is a very, very large cut and very risky because I think we absolutely could see some states feeling like they can't come up with the money and opting out of the program entirely. The second big cut is there is already a very harsh, very red tape-laden work requirement in the SNAP program that applies to people without children ages 18 through 54. And so if people are out of work for more than three months in any three-year period, they can't get snap at all.

They get cut off the program entirely. It's a very harsh requirement. We have a lot of research evidence about this requirement, and the research evidence all shows it doesn't improve employment rates, but it does a very good job of cutting people that need help off the program and deepening poverty. So that's the existing requirement. For the first time, this bill would take the requirement to age 64. So people in that older adult period who often actually have much higher rates of disability and health issues that are often work limiting. Anyway, people in that older age group, as well as parents with children as young as age seven.

And so it marks this kind of stark departure of applying these requirements that again, are highly problematic and highly ineffective on the existing population to parents with kids putting food assistance for kids at serious jeopardy as well as those older adults. So that and that results in millions of people losing food assistance under the CBO estimate. There are some other cuts and I just want to highlight one, which is there is a theme throughout this bill of very harsh cuts for people who are immigrants who are legally living and working in the United States. And so there are some cuts in that area, too, that we can talk about. But let me see. Do you have questions on SNAP? No, that was it about I was curious on SNAP. Can an undocumented

immigrant get access to SNAP? It's a great question. People without a documented immigration status are not eligible for SNAP now. So the immigration cuts are all related to people who are here lawfully. And it's a really interesting and I think just really distressing place that some policymakers have gone because the people they are trying to take snap away from include refugees who were given refugee status in other countries and brought to the United States. People that have been granted asylum so they've had to prove that they have, that they would be persecuted in their home country. victims of sex and labor trafficking and victims of domestic violence. So other groups that also have humanitarian protection as well. This is a group of immigrants that in the 90s, when there was a big wave of pretty harsh anti-immigrant provisions that were put into programs like SNAP and Medicaid, this group of immigrants that had been

granted humanitarian protection in the United States that were viewed as having a real humanitarian need to either come to the United States as refugees or be able to stay, we're protected in that round. And here, it is just a walking away from that commitment to people that have endured just horrific things in their lives and are building new lives here. And all the evidence shows that they are successfully build new lives here and are a tremendous asset to their communities on the economy. it feels like to me, I'm curious, if this sounds right to you, that the way this legislation works to reduce cost, and there's a bunch of ways, but the three ways that kind of stand out

that feel kind of sort of new and different, you know, they've been around for a long time, but they're finally being brought to the floor, is work requirements, push more to the states and just make it more difficult for particularly immigrants to be able to afford the or be able to get eligibility to the program. Is that, does that, is that, is that right? Is that sound right? It does. That's, I mean, those are the three main lines of attack. So, yeah, okay. Okay. Justin, anything, Marissa, may go to you. Mercer, anything, do you want to put, I know you're going, do you want to talk about Medicaid at all? Yeah, we can talk about health. Okay. Sure. So, so, so there are very deep,

in Medicaid and the Affordable Care Act, they total a trillion dollars through 2034. The largest chunk of that is Medicaid, but the cuts to the Affordable Care Act marketplace coverage are also quite significant. For the first time in the history of the program, there would be a national nationally people who were unable to show that they were working and be able to make it through the red tape and document that they were either working or should be exempt would lose Medicaid coverage. That is limited to people without children, so it does not include parents, but is really a huge shift in the program. And just as in SNAP, very, very damaging. I want to just make clear that there are multiple problems with these kinds of so-called work requirements. First of all,

we have a lot of evidence that many of the people who lose eligibility through work requirements, whether in health coverage or in food assistance, are actually working. But the systems to document it are so complicated and so full of red tape that people can't navigate. Many of them are also should meet the exemptions. There's always a list of exemptions of people that, you know, who are sick or who have a disability.

But same thing. Many of the people that lose are people who should qualify for an exemption, but they weren't able to convince the state or work through the system to document it. The third group are people who are out of work. And you all know better than I do that in a dynamic economy, even during good times, there are always people that are out of work. And most people are between jobs and they find jobs and they move back and forth. And we know that people in low paid jobs service sector, those kinds of occupations, those jobs have more instability, more moving in and out.

And so the third thing that these work requirements do is they try. trip up people that are just between jobs. All of our evidence suggests that most people who are able to work do work, and if they're not working, they're either between jobs, because that's what happens in a dynamic economy, or they have a real serious reason why they're not working. They're ill themselves. They're caring for a sick child. They're caring for an elderly family member. And these work requirements do an absolutely terrible job of actually protecting those kinds of people. So in Medicaid, for the first time, it's the largest single cut is putting work requirements on people in Medicaid. And therefore, really, I mean, you could imagine a scenario where somebody

loses, gets sick, has to leave a job, loses their health insurance, applies for Medicaid, and they say, I'm sorry, you're not working, you're not eligible. One statistic that blows my mind, correct me if you've heard another, is that the labor force participation rate for folks under the age of 65 and that are able, not disabled, in the Medicaid program is exactly the same as it is in the general labor force. There's no difference between the two. Yeah. Okay.

So getting back. So there's that there are lots of ways that the bill puts up new barriers, even in addition to work requirements, that make it hard to get Medicaid or keep Medicaid or make it hard to get ACA coverage and keep ACA coverage. So they're going to tell people that instead of reupping their coverage once a year, which is what happens in Medicaid now, they'll have to do it twice a year. And in the ACA, they're shortening the open enrollment period. And they're ending automatic reenrollment, which is how most people who have employer coverage keep their coverage year to year,

is through automatic reenrollment. So there are a whole range of ways that they're just making it hard to get, coverage. Here too, the bill would take marketplace coverage, affordable marketplace coverage away from that same group of refugees and people granted asylum and people who have been victims of sex and labor trafficking. And it makes marketplace coverage more costly. And then just like in SNAP, where we saw a cost shift to states, they're doing a number of things in Medicaid that effectively make states have to pay for more of the cost. And so when you wrap all that together, that's a trillion dollars in cuts. Now, the second thing the bill does is even as it's extending

all of the tax cuts from 2017 and adding more on top, the bill actually doesn't extend the tax cut, the enhanced premium tax credit. That's the premium tax credit is what makes marketplace coverage more affordable. That's what subsidizes the premium. Those subsidies were increased in 2021 and later extended, but they expire in 2025, just like the other tax cuts. And so while they extend to everything, including estate tax and all the things, they don't extend this. And so of the 16 million people who this agenda will make uninsured by 2034, about 4 million of that is from not extending the premium tax credit enhancements, and 12 million is from actually taking coverage away from people who would have it under current law.

Well, we're running out of time, Sharon, and I do want to get on the street level here for a second and talk about the politics of this and what's actually going to happen. I mean, it's now in the Senate. And all the reservations you expressed are being expressed by some Republican senators, you know, on the Medicaid cuts. There's folks out there saying, well, they don't want to do that. on, you know, on the fiscal issues or folks that are, you know, dead set against anything that will add to budget deficit.

So you can almost find someone in the Senate, even on the Republican side, who's kind of sympathetic to what you're saying. What do you think happens here? What actually gets done? Is it going to look close to what we have now or is it going to be very different from what we have now? Do you have a sense of that? Yeah.

I think that it obviously passed the House by the narrowest of margins. I don't think the House bill can pass the Senate. So there will be changes if they can get it through the Senate. I think the better bet is they get something through the Senate and there will be differences and they will try to work them out. The president is pushing, as well as Leader Thune and Speaker Johnson are pushing very hard to get this done fast. And I think that's actually part of the tell about this bill. Why do they want to do it so fast?

They want to do it fast because it's already underwater and the more people learn about the bill, the less popular it gets. And so for them that are trying to push this bill forward, they want to move as fast as possible. And that's why the president's putting all kinds of pressure on the Senate to go quickly and he wants the whole thing wrapped in a bow before July 4th.

I think because the more, the public learns about the bill, the less popular it becomes, you are seeing more and more people speak out. There's also a lot of backdoor conversations where governors on both sides of the aisle are saying, now, wait a minute, this is a huge problem for us. Like, our budgets are already strained. We may be heading into recession. The economy is softening. We have to balance our budgets every year. We can't afford these cost shifts. And so there is clearly a lot there that people are unhappy about. And it also certainly has, you know, the backing of the president in an era of unified control of Congress. So how it all shakes out and what an ultimate bill looks like and can

they get it through, we'll have to see. But one of the things that's, I think, most disappointing is to see that the public actually understands us. Right. We've talked a lot about details, right? We've talked about this distribution, that distribution, percent of GDP and all the rest. But the public actually does get the basics, right? The big tax cuts, skew towards the wealthy, my health coverage, my family's health coverage is put in peril. I have all these tariffs to pay. Like, there's nothing in here for me.

And while, of course, there's some tax cuts for the middle, there is a lot of damage done. And so I think we'll just see whether or not policymakers are responsive to the views of their constituents or whether there is just a political head of steam with the president trying to kind of strongly back behind this. But if that happens and it looks, you know, roughly similar to the House bill, there is enormous damage in the near term to real people. I know the administration was quite unhappy with the idea that people would die and they viewed that as like kind of, kind of an outrageous thing to say. But we have all kinds of evidence that Medicaid saved lives. And when you take millions of people and take their health coverage away, people don't get the

life-saving coverage that they need. And that's just the reality. And so if that happens, the damage fiscally and the damage to people will be very large. And then the task will be to really document that harm and to come back and find ways to build back to a set of policies that are more responsive to the needs of people. Well, I guess the other forcing mechanism here is the Treasury debt limit, right? Because what's the X state, Justin, right now? Do you know the X state? I have it at July 29th. Oh, really? I didn't know. Was that early? July 29th? I think the Treasury has it the first week of August. Okay. So there you go. I'm a little more pessimistic. Something's got to get done before then, right? Because this Treasury debt limit is part of that reconciliation package. If that's not lifted, then, oh, so that's a pretty significant forcing mechanism. Okay.

Well, there's that, right. I mean, I think the other question, which is more in your bailiwick, is with deficits of this size, the trajectory as such as it is, you know, is there a market response? And obviously the markets have been upside, you know, up and down and all around. But there does seem to be nervousness about where, what happens in light of these deficit and debt trajectories. Very much so. Very much so. Well, Sharon, we're going to, because I know you're. You've got to get going, and I really appreciate you taking the time with us, and that was very helpful. 30,000 foot, 10,000 foot, 5,000 foot, and on the street level, you can do it all. So thank you, thank you, thank you. And with that, dear listener, we're going to call this a podcast. Talk to you soon. Take care now.