Analysts at the Congressional Budget Office (CBO) have published an analysis that could keep employers’ group health benefits tax exclusion in budget cutters’ dreams, and nightmares, for years to come.
The CBO is now predicting that exempting group health premiums from employers’ taxable income will cost the federal government about $516 billion in tax revenue in the 2030 federal fiscal year, up from $303 billion for the 2021 federal fiscal year.
That means that the cost of the group health tax break could increase by 67%, or by about $200 billion per year.
- A copy of the new CBO analysis of federal health coverage subsidies is available here.
- An article about an earlier CBO health subsidy analysis is available here.
The federal fiscal year runs from Oct. 1 through Sept. 30. Federal fiscal year 2021 started last Thursday.
The CBO is an arm of Congress that helps members of Congress look for ways to manage federal spending.
The Deficit Is Still There, and Bigger
Some members of Congress may have tried to close their eyes and think of kittens and puppies when getting CBO briefings in the past few months, but they may soon have to open their eyes and pay attention.
The U.S. federal government reported a loss of $1 trillion for fiscal year 2019, on $3.5 trillion in revenue and $21 trillion in “gross domestic product” (GDP), or national income, compared with a loss of $779 billion for fiscal year 2018 on $4.1 trillion in revenue.
The CBO is now estimating that the government ran up a deficit of $3.3 trillion for fiscal year 2020 on just $3.3 trillion in revenue. The CBO is is hoping that the government will report a deficit of just $1.8 trillion on $3.3 trillion in revenue for fiscal year 2021.
The federal Office of Management and Budget, which is part of the White House, publishes a list of federal “income tax expenditures,” ranked by the projected federal revenue effect, every year. The group health tax exclusion is the top tax expenditure on the list.
The exclusion of net imputed rental income ranks second, the tax rules for capital gains rank third, and the exclusion for employer contributions to defined contribution retirement plans, including 401(k) plans, ranks fourth.
Other Federal Health Coverage Subsidies
The CBO analysts also looked at the federal budget impact of other major types of coverage.
Programs for the Poor
The category of programs that help poor people includes the federal share of spending on Children’s Health Insurance Program (CHIP) coverage and Medicaid.