Unpacking the Build Back Better Agenda: Implications for Florida’s Households and Businesses
President Joe Biden’s Build Back Better Agenda (BBBA) has been a central focus of his administration, aiming to implement significant increases in various areas of spending while assuring that taxes for ordinary Americans will not be raised. However, due to unexpected inflation, the administration has had to scale back its spending initiatives, reducing the original agenda from around $4 trillion to $2 trillion in new spending. To compensate for this, taxes on the wealthiest households are set to increase. Nevertheless, the overall cost of the plan is expected to have a negative impact on households across the board.
According to an analysis conducted on the BBBA, several key findings have emerged. First, the after-tax income of the median family in Florida is projected to decrease by approximately $2,000 over a 10-year period. Additionally, the employment rate in Florida is estimated to be adversely affected, resulting in a loss equivalent to 2,565 jobs in 2022. By 2031, this negative impact on employment is expected to increase to 2,684 jobs. Moreover, the average after-tax income for taxpayers across all income quintiles in Florida is anticipated to decrease in the long run. Lastly, the level of real GDP in Florida is projected to decline by 0.12% in the long run, with a reduction of $1.52 billion in 2022 and over $1.77 billion by 2031 compared to expected growth.
It’s important to note that the analysis does not account for the potential impact of making the expansion of the Child Tax Credit (CTC) permanent. However, research suggests that the CTC expansion could lead to a decrease in labor force participation by 1.5 million working parents due to the elimination of work incentives present in the previous version of the tax credit. This policy change could exacerbate current labor shortages, contribute to higher inflation rates, and impede economic growth.
President Biden’s Build Back Better Agenda has become the centerpiece of a new proposal by Democratic lawmakers in the House of Representatives. The estimated cost of the plan is around $2 trillion, covering various areas such as universal pre-K, child care subsidies, increased Medicaid coverage, and significant spending on climate change initiatives.
Although Democratic leaders hope that the substantial increase in spending will be appealing to voters and secure their majority in Congress, moderate members of the party have expressed concerns about the high price tag and specific provisions within the bill.
Despite assurances from the Biden Administration that the plan is fully funded, the Congressional Budget Office predicts that it would increase the budget deficit by $367 billion over the next decade, despite the implementation of new taxes on individuals, businesses, and corporations.
Tax policy can have a significant impact on economic decisions. While tax increases reduce the after-tax return on work, savings, and investments, a decrease in after-tax income can compel individuals to work more in order to maintain their previous level of well-being. Additionally, an increase in federal borrowing can further impede long-term growth.
Unfortunately, despite claims that most Americans will not face tax hikes, the changes to the federal tax code are expected to affect the entire population. Consumers, workers, and households bear the burden of corporate taxes, and individual income taxes directly increase the tax burden on higher-income Americans.
The economic impact of the BBBA on Florida is substantial. It is estimated that there will be a 0.12% decline in long-run GDP, with the cost growing from $1.52 billion in 2022 to over $1.77 billion in 2031, adjusted for inflation. Employment in Florida is also projected to decline by the equivalent of 2,565 jobs in 2022, with the negative effect on employment reaching 2,684 jobs by 2031 compared to the scenario without the BBBA tax increases. Additionally, the median family in Florida is expected to experience a reduction of nearly $2,000 in after-tax income over the next decade.
The most affected individuals are those in the mid-career phase, earning $10 million or more, who are projected to experience a roughly 25% decrease in their after-tax income.
Despite claims that most Americans would not face any costs, the BBBA will reduce after-tax income for all Floridians. Although the impact on income disproportionately affects higher-income individuals, the effects on labor supply are most significant among lower-income households.
The decline in wages results in a decrease in the relative price of non-market activities. While high-income and high-wealth individuals reduce their working hours, younger, less wealthy workers increase their labor supply to accumulate savings and maintain their consumption levels throughout different stages of life. This suggests that everyone is negatively affected by the policy change.
It is important to acknowledge that the draft legislation may undergo modifications before adoption. However, this analysis provides estimates of the economic and distributional impacts of the proposed tax changes within the BBBA, directly affecting household budgets and economic decision-making.