CBO Updates Savings Estimates from Spending and Tax Choices

CBO Updates Savings Estimates from Spending and Tax Choices

December 14, 2018  | Jeff Davis

December 14, 2018

This week, the nonpartisan Congressional Budget Office issued its biennial report updating a wide menu of revenue increase and spending cut options and the amount by which each of the 121 options would decrease federal deficits over the coming years.

Called Options for Reducing the Deficit: 2019 to 2028 (but commonly referred to as the Book of Painful Choices), many of the deficit reduction options referred to in the report will no doubt be discussed next year as budget discussions get underway and as projected federal deficits head back up to the trillion-dollar-per-year neighborhood.

It should be noted that CBO is not actually recommending any of these options as policy, but if enough people ask CBO to give an idea a budget score, they give it a score.

Several of the options presented deal specifically with the transportation and infrastructure sector. We will deal with the tax options first. Links are to the pertinent sections of the CBO report.

Increase motor fuels taxes and index for inflation. This option consists of two alternative increases in the excise tax rates on motor fuels. Under the first alternative, federal excise tax rates on gasoline and diesel fuel would be increased by 15 cents per gallon. Under the second alternative, those tax rates would be increased by 35 cents per gallon. Under each alternative, the tax would be indexed for inflation each year. The 15 cent increase would raise a net $237 billion in revenue over a decade and the 35 cent increase would raise an estimated $515 billion. However, these are net numbers. If the tax increases were deposited in the Highway Trust Fund, then receipts credited to the trust fund would be about 20-25 percent higher, because excise tax increases always cause decreases in income tax collections (every dollar collected in excise tax means that someone, somewhere, has a dollar less in taxable income and thus does not pay income tax on that dollar). But the lost income tax revenues are felt by the general fund, not the trust fund. If a motor fuels tax increase were deposited in the general fund for deficit reduction (as 2.5 cents of the 1990 tax increase originally was, and as the entire 4.3 cent 1993 tax increase originally was), then the net numbers after the income tax offset losses, as shown below, would be used.

FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY18 10-Yr.
15 c.p.g. 15.2 21.9 22.7 23.5 24.2 25.0 25.6 25.8 26.2 26.9 237.1
35 c.p.g. 35.1 50.2 51.3 52.2 53.1 54.0 54.7 54.4 54.6 55.3 514.9

Impose a per-mile overland freight transportation tax. This option would impose a new tax on freight transport by truck and rail. The tax would be 30 cents per mile on freight transport by heavy-duty trucks. Under the option, freight transport by rail would be subject to a tax of 12 cents per mile (per railcar). The tax would not apply to miles traveled by trucks or railcars without cargo. (There is already a federal excise tax on air freight transportation.) This is estimated to raise $358.3 billion in increased taxes over ten years, as follows:

FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY18 10-Yr.
23.2 35.3 35.8 36.3 36.8 37.4 38.1 38.0 38.3 39.0 358.3

Eliminate the Tax Exemption for New Qualified Private Activity Bonds. This option would eliminate the tax exemption for new qualified private activity bonds beginning in 2019. (This option was proposed and then rejected by the tax committees a year ago during negotiations on the tax reform bill.) This would raise approximately $31.8 billion in additional tax revenue over ten years.

FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY18 10-Yr.
0.1 0.6 1.3 2.0 2.7 3.5 4.3 5.1 5.8 6.5 31.8

When it comes to the discretionary spending options, the report does not assume any changes in fiscal 2019, probably because this report has been in the works for months and its authors assumed that all the FY 2019 appropriations laws would already be enacted by this point.

Limit Highway Trust Fund spending to anticipated revenues. This option would reduce federal funding for highways and mass transit, starting in fiscal year 2021 (i.e. after the end of the FAST Act), by lowering the obligation limitations for highway and transit programs supported by the Highway Trust Fund to the amount of revenues projected to be credited to the fund. The federal taxes that directly fund the Highway Trust Fund would not change. (The option would not affect highway spending that is exempt from the limitations on obligations; CBO projects $739 million per year in such spending.) Total new spending commitments over the eight years 2021-2028 period would be $171 billion below baseline, and deficit reduction over that period would be $116 billion below baseline outlays.

FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY18 10-Yr.
CA/ObLim -16 -17 -19 -21 -22 -24 -25 -27 -171
Outlays -2 -9 -12 -14 -17 -19 -21 -22 -116

Eliminate funding for Amtrak. This option eliminates all new appropriations for grants to Amtrak starting in fiscal 2020. The total deficit reduction (outlays) would be $19.8 billion over ten years.

FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY18 10-Yr.
-2.0 -2.1 -2.1 -2.2 -2.2 -2.3 -2.3 -2.3 -2.4 -19.8

Eliminate funding for Essential Air Service subsidies. This option eliminates both the discretionary component of Essential Air Service subsides in the annual appropriation bill and the mandatory fee-funded component of EAS. Total deficit reduction (outlays) would be about $2.9 billion over ten years.

FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY18 10-Yr.
EAS discret. -0.1 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -1.5
EAS mand. -0.1 -0.1 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -1.4

Eliminate the Federal Transit Administration. This option would  phase out the FTA, terminating new spending on its programs after the FAST Act expires in 2020 and eliminating the agency entirely upon completion of its outstanding grants. The option would not affect the federal taxes on motor fuels that provide some of the funding for the FTA: The 2.86 cents per gallon now credited to the Mass Transit Account of the Highway Trust Fund would continue to be collected, whether the revenues were credited to the (sole remaining) Highway Account of the HTF or to the general fund of the Treasury. This option result in $127 in reduced appropriations and contract authority over eight years, which would translate into $87 billion in deficit reduction through lower outlays.

FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY18 10-Yr.
BA/CA -15 -15 -15 -16 -16 -16 -17 -17 -127
Outlays -2 -6 -9 -11 -13 -15 -16 -16 -87

Repeal the Davis-Bacon Act. This option would repeal the Davis-Bacon prevailing wage law, thus decreasing the cost of projects in federal construction or federally-assisted construction programs. The option assumes that Congress would then somehow reduce appropriations, and obligation limitations on Highway Trust Fund and airport contract authority programs, by the amount by which those project costs were reduced (no one is quite sure how that last part would work in practice). CBO estimates that total appropriations and transportation obligation limitations could decrease by $18.4 billion over a decade in the absence of Davis-Bacon, which would then lead to $12.1 billion in deficit reduction due to decreased outlays.

FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY18 10-Yr.
BA/ObLim -1.0 -2.0 -2.1 -2.1 -2.1 -2.2 -2.2 -2.3 -2.3 -18.4
Outlays -0.4 -1.1 -1.3 -1.4 -1.5 -1.5 -1.6 -1.6 -1.6 -12.1

Reduce EPA water grants by 50 percent. This option would reduce the EPA’s State and Tribal Assistance Grants account by 25 percent in FY 2020 and by another 25 percent in 2021 and thereafter. This account funds grants for wastewater and drinking water infrastructure, as well as other grants that help states implement federal water, air, waste, and chemical programs. CBO estimates that this would reduce appropriations for the account by $16.7 billion over ten years which would translate into $14 billion in reduced federal deficits via lower outlays.

FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY18 10-Yr.
BA -0.9 -1.8 -1.9 -1.9 -1.9 -2.0 -2.1 -2.1 -2.2 -16.7
Outlays -0.1 -0.7 -1.4 -1.8 -1.9 -1.9 -2.0 -2.0 -2.1 -14.0

Increase TSA Aviation Security Fees by $2.65 each way. This option would increase the TSA aviation security fee (a discretionary offsetting collection that shows up in the budget as negative spending, which is why it is in the spending side of the report and not the revenue side). The fee is currently capped at $5.60 per one-way ticket, and the budget option would increase this by $2.65 one-way, to a maximum of $8.25 one-way and $16.50 per round-trip. This option would decrease deficits by $20.5 billion over a decade through increased fee collections.

FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY18 10-Yr.
-2.0 -2.0 -2.1 -2.2 -2.3 -2.4 -2.4 -2.5 -2.6 -20.5
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