The Republican budget package aims to make President Donald Trump’s tax cuts permanent while offering a host of new financial breaks. Yet the “big, beautiful bill,” as the legislation is dubbed, could also effectively transfer wealth from younger generations to older Americans over their lifetimes, a recent study finds.
Long-term, the primary beneficiaries of the GOP bill would be older, wealthier Americans, while younger, middle- to low-income people would see fewer benefits, according to the analysis from the Penn Wharton Budget Model, a University of Pennsylvania think tank that studies the fiscal issues.
The group’s projection assesses the impact of proposed tax cuts under the bill, as well as reductions in federal programs such as Medicaid and the Supplemental Nutrition Assistance Program, or SNAP, better known as food stamps. Penn Wharton also factors in the long-term fiscal impact of the debt the U.S. would likely have to issue to pay for the bill’s tax cuts, the group said.
“Somebody has to pay”
“Somebody has to pay — nothing is for free. In this case, that’s the future generations,” he said. “We have finally reached this inflection point where under any reasonable estimation, younger people are going to be worse off in the future” if the current version of the bill is passed.
For example, the bill would cost an infant born into a low-income family $14,100 over their lifetime. This loss stems from factors including reduced social safety net benefits and lower wages resulting from slower economic growth driven by increased national debt and deficits.
On the other hand, a high-income 70-year-old stands to gain $120,000 over his remaining years due to the proposed legislation’s tax cuts and other benefits, the analysis found.
The House narrowly passed the legislation in May. Senate lawmakers are pressing to vote on the measure by the end of the week.
The White House took issue with Penn Wharton’s analysis.
Biggest winners
Like Penn Wharton, other researchers have said the Republican bill is likely to benefit wealthy Americans at the expense of people lower down the ladder.
The measure would likely reduce the financial resources available to the lowest-earning 10% of U.S. households by $1,600 per year, or almost 4% of their annual income, according to a report published earlier this month by the nonpartisan Congressional Budget Office. White House officials have previously questioned the CBO’s scoring of the bill.
But the highest-earning 10% of households would see a gain of $12,000 per year in resources, while middle-income households would see a gain of $500 to $1,000, the CBO projected. Its analysis is based on the bill’s tax breaks, as well as reductions for federal programs and reductions in state funds for safety net programs such as Medicaid and food stamps.
In considering the impact of higher U.S. debt on future generations, the cost would come in the form of lower wages and higher costs, such as more expensive mortgages, Smetters said.
Already, the U.S. is spending more than $1 trillion a year to service its debt — almost double the amount it was paying five years ago, according to Federal Reserve Bank of St. Louis data. That’s more than the nation currently spends on defense, data from the Stockholm International Peace Research Institute shows.
Clock ticking
Taking on more debt to pay for the GOP bill could make it tougher for the federal government to pay for programs like Social Security as more of its budget is eaten up by interest payments. Higher debt would also likely result in higher interest rates, as well as slowing economic growth, the Yale Budget Lab projects.
Elements of the bill are still under debate on Capitol Hill, with congressional Republicans racing to meet a self-imposed July 4 deadline to send the package to President Trump for his signature. The last scheduled day in session for both the House and Senate before they leave town for the holiday is Friday, leaving little time to reach a deal.
Some Republicans are at loggerheads over certain provisions, such as the state and local tax deduction, known as SALT, with House lawmakers pushing for a bigger deduction than in the Senate.
If the bill moves ahead, the long-term combination of benefit reductions and swelling federal debt could outweigh the benefits of tax cuts for younger Americans, the Penn Wharton analysis said.
“Sometimes people say, ‘If I’m in 40th-60th [percentile of income], I won’t get SNAP or Medicaid,’ but actually there is a chance that you could still,” Smetters said. “There is a chance anybody could be unemployed or be on food stamps.”
