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Well, the reconciliation bill passed through the Senate and the House, and it helps extend the 2017 Tax Cuts and Jobs
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Act, but there are concerns about what the bill might do to the national debt, how it will impact jobs, various other
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issues, and the impact it will have on the labor force. Pleasure to be joined by Kent Smeters, who's faculty director
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of the Pen Wharton budget model, as well as a professor of business, economics, and public policy. The Pen Wharton
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budget model, by the way, has done a full review of the impacts and Kent joins us to go over them. Kent, great to
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talk to you again. How are you, sir? Be back. Thanks for having me again. Thank you. All right, so let's dig into
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the numbers right now and what we see passed and signed by the president on July 4th. What are the impacts the Pen
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Wharton budget model expects to occur? So, as you pointed out, debt over time, that is higher deficits
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uh every single year over time. And so, we're expecting about 3.2 trillion in
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additional debt over the next 10 years. And if you do this on what's called a
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dynamic basis, that is you take into account economic feedback that it actually goes up, not down.
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In particular, the 3.2 trillion goes up to 3.6 uh trillion. And um the main reason
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there is some dynamics associated with who's paying taxes as well as how some
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people can re-qualify for certain benefits like Medicaid and so forth. And so we uh show that uh really the impact
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on the economy is basically zero um or over the first 10 years technically a slight negative by about a third of 1%
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of GDP over 30 years a bigger negative impact roughly about four and a half% of GDP over 30 years that this will uh
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reduce the economy by um the main drivers there are just continued uh increases in debt even beyond the
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10-year budget window. Uh you mentioned about the healthc care potential issues. Uh a lot of
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conversation about that. Also conversation about SNAP things like SNAP benefits. Uh give us a sense of what
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kind of impact we're going to see there. Right. Um, so our numbers are probably
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not quite as pessimistic as CBOS's in terms of how many people are going to lose healthcare, but um, they're, you
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know, around 11 12 million. We're a bit less than that, but still um, there will
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be some people who will have a harder time qualifying for Medicaid. Um, this is in large part undoing um, some of the
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expansions that happened under uh, Biden as well as Obama on the Medicaid side. um uh in terms of the impact on say by
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income group. So the Senate what they purposely did is they delayed some of the hit until after the midterm
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election. We're basically saying the bottom 20% tile right now in uh the year 2027 are
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basically going to have very little impact, but they will still be net losers of about $165 per household. Um
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uh but by 2030, the bill would basically um reduce resources for the bottom 40% of
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households. Uh it it would um if you take in account both taxes saved as well as transfers
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reduced that is how much less they get and principally in the form of Medicaid and SNAP the bottom 40% will lose
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roughly about $1,000 a year and that's mostly uh from the fact that some of the
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tax benefits that they otherwise would have enjoyed be before 2030 such as not no tax on tips And overtime that pretty
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much wears off by that point. And the bigger loss really just comes from the loss of Medicaid and SNAP. So
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roughly about $1,000 per uh household in the lower 40% of the income distribution.
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You mentioned the taxes part of the story and a lot of discussion about uh you know the extension of the tax cut
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and jobs act and the potential benefits and that's talked a lot about by the
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administration. But there are also a lot of people out there who are saying that
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while there may be some benefit, it may not be as strong a benefit as what maybe
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people would like to see. Sure. I mean, the administration really um I don't know how to say this more
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politely, but they just kind of uh greatly embellished the the economic benefits of uh this particular bill. And
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in particular, um, they said went as far as to say not only would the economic expansion be so
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big that the tax bases would grow so large that they um, it would the bill would actually pay for itself. So it
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would grow the economy so much that the bill would actually pay for itself. it would grow so much even more than that
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that it would then bring down the debt GDP ratio which without this bill is already increasing and so even before
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this became current law um the current law be you know a minute before this was signed already had an exploding debt the
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GDP ratio over time so they they're saying this is going to create so much revenue it will even turn that around so
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it's not going to just pay for itself up, but it's going to like doubly pay
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for itself. I mean, it was just over the top and there's really no rational economic model that can justify that
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type of conclusion. So, like you said, um most groups, including us, you know, concluded that the economic impacts are
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pretty modest. You could go plus or negative in the first 10 years, but it's
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roughly around zero. And part of the conversation also is the uh the money the revenues that would be coming in
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from tariffs but that has you know a a small impact on what the overall numbers would be for the government over the
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next several years as well. Correct. Right. And for this particular bill they can't count that money anyway because um
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that money would have been attributed to what's called executive action or executive order. And so for the purpose
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of this bill would be ex excluded. It's already part of what we call the baseline. Um but who knows where that
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money is gonna come down to. I mean if we took the April 2nd you know uh a rates seriously um and that's you know
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almost created a meltdown of financial markets. Um that would have raised potentially four to5 trillion dollars
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over 10 years. um but at the same time really crush the economy. Um but if we look at more modest rates of you know to
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that they're potentially looking at we're maybe talking about a couple trillion dollars over 10 years. But the
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problem with that is that even if you use all that money to try to pay down debt that is to reduce the budgetary
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impact of this bill you're also really uh playing with capital markets. you're
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narrowing the base of capital markets over time by which you are trying to sell all this debt into. And so on one
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hand you get some revenue um so that you can use it to reduce reduce debt. But we
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really need a really open market you know worldwide capital market to be demanding our debt. And to the extent
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that a reduction in trade reduces um the demand for our debt um uh that's going to uh be much more negative than
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any positive income that comes from the tariff revenue. And longer term, as you said, there's an
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impact to the ne to the downside over the next several decades with this bill in place. Um and that would obviously
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mean there's a negative impact on GDP as well, right? Um so even putting the tariffs uh
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issues aside we're projecting that indeed this bill would now law it would reduce GDP by
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over 4 and a.5% in about 30 years. So it really does add a fair amount to debt because it's not only that it's bigger
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than the House version that was you know previously passed on the House side. What the Senate really did is they said
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we're going to make a lot of these provisions permanent, you know, for what's called bird rule
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compliance. We'll pretend like anything that's already in the tax discussion
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jobs act will not cost us anything because after and so there's a little bit of an accounting game going on. But
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in terms of actual debt that has to be sold by the US Treasury, that's going to
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remain the same. And that's just it's just more things that we have to finance
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really using debt. So there are options out there to deal with this, you know, growing debt problem. It's just that
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they're not being discussed right now in DC. Yeah. Yep. All right, Kent, great to talk to
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you. Thanks very much for your time, sir. Pleasure. Thank you. Ken Smeters, faculty director
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of the Pen Wharton budget model and professor of business, economics, and public policy at the Wharton School.