The 2020 Long-Term Budget Outlook

Changes in Projected Revenues

In CBO’s current extended baseline projections, federal revenues total 16.0 percent of GDP in 2020 and 15.5 percent in 2021—0.7 percentage points and 1.2 percentage points less, respectively, than CBO projected last year. By 2049, revenues are projected to reach 18.6 percent of GDP; that projection is 0.9 percentage points less than last year’s. Because of downward revisions to CBO’s projections of GDP and of revenues as a share of GDP, projected revenues, in dollar terms, are generally lower than they were last year throughout the 30-year projection period.

Legislation enacted in response to the pandemic reduced projected revenues early in the period, but the downward revision in projected revenues in the long run results primarily from a provision in the Further Consolidated Appropriations Act, 2020 (P.L. 116-94, enacted on December 20, 2019), that repealed the excise tax on employment-based health insurance plans with high premiums. Other factors, including the reduction in the projected rate of real bracket creep stemming from the downward revision to the agency’s projections of economic growth, also led CBO to lower its projections of revenues.

The repeal of the tax on employment-based health insurance plans with premiums exceeding certain thresholds accounts for lower revenues in CBO’s current projections. That tax was scheduled to take effect in 2022. Last year, CBO projected that revenues stemming from the tax—including not only revenues from the excise tax itself but also revenues from its effects on income and payroll taxes—would equal 0.7 percent of GDP in 2049. Though some employers and workers would have remained in plans subject to the tax, other employers and workers would have shifted to insurance plans with lower premiums to avoid the tax or to reduce their tax liability. CBO and the staff of the Joint Committee on Taxation estimated that those shifts would have generally increased income tax revenues because affected workers would have received less of their compensation in nontaxable health benefits and more in taxable wages. Therefore, repealing that tax is projected to reduce collections of excise taxes and collections of income and payroll taxes (because taxable wages are projected to be lower than they would have been if the tax had taken effect). Those revenue reductions are projected to grow steadily throughout the period.

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