Connecticut’s Comptroller Sean Scanlon released a 31-page report yesterday, assessing the financial impacts that passage of President Trump’s “One Big, Beautiful Bill Act” (OBBBA) would have on both state budgets and taxpayers.
“It’s the job of the State Comptroller to monitor both our state budget and the overall economy, and I have tried hard—as have my predecessors—to be an umpire who calls balls and strikes regardless of what team is at the plate,” wrote Scanlon. “To that end, we present this information to the public in a neutral format.”
The report projects large increases in state costs, significant decreases in state revenues, and tax relief primarily benefitting the state’s wealthiest residents. Cuts in federal funding to Medicaid are expected to number $13 billion over the next decade, expected adjustments to SNAP would require the state pay anywhere from $84 million to $173 million more per year to cover current levels of service, and tax relief, largely relegated to the state’s wealthiest residents and large corporations, are expected to reduce state revenues for years to come.
“When it comes to winners and losers, non-partisan analysts generally agree,” said Scanlon. “Most income gains will go to the wealthy, while the poorest groups of Americans will see their after-tax-and-transfers resources shrink when accounting for cuts to government benefits.”
The report’s most eye-popping takeaway is the bill’s projected impacts on state insurance plans. As a result of the projected $13 billion in cuts to state Medicaid, which is administered through the state’s HUSKY plans, anywhere from 103,000 to 171,000 state residents will lose coverage. The report notes that this could strain healthcare providers and raise private premiums.
“Much of those losses will result from otherwise eligible people getting kicked off the program due to red tape,” reads the report. “Connecticut’s healthcare system could see major impacts, via fewer patients and more uncompensated care, putting providers who serve large Medicaid populations at risk and potentially leading to cost shifting to commercial health insurance.”
The report also noted that while the state will receive less federal Medicaid funding, it will have to spend more to implement it as a result of OBBBA’s new work requirements for Medicaid recipients. The report projects that the state will have to spend an extra $20 million to $50 million to keep track of work requirement compliance, keep up with a double frequency of eligibility determinations, and communicate with enrollees.
HUSKY plans would not be the only insurance plans impacted by the changes either. As a result of expiring federal subsidies to ACA plans, premiums are expected to rise. Access Health CT, the state’s ACA insurance marketplace, projects a loss of up to 50,000 enrollees by 2034 due to rising costs. The report also notes that the loss of federal subsidies to enrollees in Access Health’s Covered Connecticut plan will cost the state an additional $32 million per year.
While state expenditures are projected to massively increase as a result of OBBBA, state revenues are also expected to decrease. A raise to the federal SALT (State and Local Taxes) deduction cap could cost the state up to $50 million per year in revenue, and extensions of the doubled estate and gift tax exemptions, first implemented in Trump’s 2017 Tax Cuts and Jobs Act (TCJA), are projected to cost the state an additional $57 million per year.
The state’s beneficiaries for these changes would largely be wealthy residents, who will be able to pass more money tax-free to their children due to extended estate tax exemptions and deduct more from their federal taxes as a result of the raised SALT cap. Small business owners will continue to receive a 20% deduction in pass-through taxes, and corporations will continue to benefit from an extension of TCJA’s 21% corporate tax rate.
The primary benefits provided by OBBBA to medium-income workers are new tax deductions for tips, overtime, and auto loan interest on US-made cars. As a result of these deductions, tipped workers will pay no federal taxes on their first $25,000 of tips, those who work overtime will pay no taxes on their first $12,500 worth of OT, and those taking out loans on certain US-made vehicles will not pay taxes on their first $10,000 worth of interest. Seniors making under $75,000 a year will also receive a $6,000 bonus.
“These deductions only benefit taxpayers who earn enough to owe federal taxes,” reads the Comptroller’s report. “The new policies won’t benefit low-income households that earn less than the standard deduction.”
An increase to the endowment tax, which taxes the investment income of private colleges, from 1.4% to a tiered rate maxing out at 8%, is anticipated to hit Yale significantly, whose endowment taxes are anticipated to increase “more than 5-fold” per the report. The report anticipates that this increased tax liability could lead to layoffs.
“Increased endowment tax is likely to hit Yale University hard, with potential employment consequences for the New Haven area,” reads the report.
Altogether, the report projects OBBBA to have a mixed impact on the state’s economic sectors. New tax bonuses and exemptions to research and development and increased defense spending are projected to benefit biotech, life sciences, and advanced manufacturing sectors, as well as military contractors. The removal of green energy incentives and changes to Medicaid and ACA are expected to negatively impact the state’s healthcare and clean energy sectors.
“I personally believe this law will have both positive and negative outcomes for residents in our state, but I leave it to you the reader to evaluate the information within this report and come to your own conclusion on what its net impact will be,” said Scanlon.
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