Macro Implications of BBB and IIJA Passage

We are still in the process of determining what’s in the Build Back Better (BBB) bill, but it approximates what is currently discussed, it in conjunction with the Infrastructure Investment and Jobs Act (IIJA) will not likely lead to much pressure in credit markets and upward pressure in prices, given it is largely paid for. Here (while we wait for the CBO) are Moody’s Analytics projections (as of 11/4).

First, net impact on the budget deficit from BBB alone.

Source: Zandi (Nov. 2021).

Next, impact on nonfarm payroll employment in baseline, and with certain combinations (where American Rescue Plan (ARP) has already been passed, so that can be viewed as the baseline against which to compare the ARP+IIJA, ARP+BBB, and ARP+IIJA+BBB.


Source: Zandi (Nov. 2021).

Employment at end-2023 will only be slightly higher (relative to ARP) if IIJA alone is implemented. Obviously, with passage of both BBB and IIJA, employment would be noticeably higher.

What about GDP and components? Table 3 in Zandi (Nov. 2021) outlines the impacts. I excerpt the GDP impacts for up to 2023Q4.

Source: Zandi (Nov. 2021).

As of 2023Q4, with IIJA and BBB implemented, real GDP will be about 1.8% higher than projected with only ARP implemented. Zandi does not provide estimates of the impact on interest rates or inflation. I can use my estimates of the slope of the Phillips curve to guess the impact on the price level (so I ignore implications for expected inflation). If the sensitivity of the price level to the (Delong-Summers version of the) output gap is 0.20, then the price level would be about a third of a percentage point higher than otherwise. My 0.20 estimate is much larger than what I obtained using a conventional output gap. Using that (not statistically significant) estimate, the price level would about 5 bps higher.

Obviously, one has to believe in the assumptions built in to condition the model (the rest of the world, monetary policy, evolution of Covid-19, etc.), as well as the model itself.

The Moody’s Analytics Global Macroeconomic Model appears to be a large scale multi-equation (thousands) macroeconometric model, where the functional equations have been estimated (rather than calibrated). An abstract of the model description is here. A schematic from the description is here:

Source: Hopkins (2018).

For a discussion of distinctions between macroeconometric models, dynamic stochastic general equilibrium models, and VARS, see this (2009) post. Note that some models are somewhere between two categories; for instance, the Fed’s FRB/US model incorporates some calibrated parameters, but many estimated equations, while the Fed’s SIGMA and EDO models are DSGEs.

For the congressional debates, the official arbiters of the impact on the budget deficit and economic output is the Congressional Budget Office (and for the impact on the budget deficit/revenues/expenditures, CBO in conjunction with the Joint Committee on Taxation, JCT).  CBO’s forecasting model is described in Arnold (2018). That’s why CBO is now working overtime.


Addendum, 1:20pm Pacific:

CRFB tabulation of Nov 4:

Source: CRFB (Nov 4, 2021). From the article.

Last week, the White House estimated that its Build Back Better framework included $1.995 trillion of offsets before accounting for the recent prescription drug pricing reforms and changes to the cap on the state and local tax (SALT) deduction. Based on new estimates from the Joint Committee on Taxation (JCT) and a September estimate from the Congressional Budget Office (CBO), it appears official scorekeepers will find closer to $1.7 trillion of offsets from provisions in the original framework and over $2.1 trillion in total offsets. This is likely to roughly cover the new spending and tax cuts in the reconciliation package, though it could fall somewhat short, depending on the costs of the paid leave and immigration provisions.

Among the offsets scored by JCT, the official estimates are mostly in line with those from the Administration. The White House originally estimated about $1.45 trillion of revenue, including $800 billion from corporations, $420 billion from passthrough entities, and $230 billion from surtaxes on income above $10 million. JCT estimates $1.46 trillion of total revenue, including $820 billion from corporations, $410 billion from passthrough entities, and $230 billion from the new surtaxes. The Administration also claimed $145 billion of savings from canceling the Trump Administration’s drug rebate rule – an estimate that we find reasonable and include in our analysis.

Missing from the JCT score is an estimate of the proposed $80 billion increase in Internal Revenue Service (IRS) funding, which will need to be scored by CBO. Based on recent estimates from CBO, we believe the agency will conclude that new IRS funding to narrow the tax gap will raise roughly $120 billion on net, substantially lower than the Administration’s estimate of $400 billion. While the Administration believes $80 billion of tax enforcement funding will raise $320 billion of gross revenue directly and generate another $160 billion by discouraging tax cheating, CBO believes the direct and indirect effects will raise $200 billion of gross revenue on a combined basis.

Assuming a $120 billion net boost results in over $1.7 trillion of net offsets in the original framework, compared to the White House’s estimate of $1.995 trillion.



47 thoughts on “Macro Implications of BBB and IIJA Passage

  1. rsm

    When you scale anything by GDP, shouldn’t you multiply both error terms, resulting in confidence intervals so wide, you can make any political point you wish?

    Don’t we all implicitly know this, which is why some inflation-monger can tell a different story and still get elected?

    Why not admit your statistics are far more uncertain than you pretend? Don’t we all know already? What’s the point in maintaining fictions about the accuracy of your econometrics? Is it that you think you need to justify your salaries by doing a lot of meaningless busy work?

    《In the end, a theory is accepted not because it is confirmed by conventional empirical tests, but because researchers persuade one another that the theory is correct and relevant.》 – Fischer Black, “Noise”

    1. Menzie Chinn Post author

      rsm: (1) we don’t know what the “error term” on GDP is. (2) Multiplying or dividing by terms with errors resulting in very wide confidence bands – even if one could get an answer to (1), the answer to your question is “maybe”. It depends on the characteristics of the error terms. For instance, are they correlated or not? I think that’s why unemployment rates exhibit less “variability” than either labor force or unemployed alone.

      You write: “What’s the point in maintaining fictions about the accuracy of your econometrics?” As my first econometrics teacher told me, the error term is the most important thing in a regression. In fact, we have it there to accommodate model uncertainty (not measurement error, which you are fixated on), which I have an idea you only have a passing understanding of.

      Have you ever taken a stats course? If not, maybe a bit of restraint is called for.

      1. pgl

        It is odd that rsm cherry picks a quote out of Fischer Black’s essay Noise but does not provide us with a link to his classic essay. So permit me:

        I have to wonder if rsm has bothered to read this paper. He certainly flunked Stats 101.

      2. paddy kivlin


        rsm as more a skeptic than a cynic. he may ask ‘what/how assumption are supported by data and is that data pertinent?

        background, ground rules, and assumptions need to be ‘verified’, and the math used ‘validated’, then repeatability/association with the real world is needed.

        the models can set you up for instrument error, if you are doing a system, and it could encourage observer error.

        recent models used to establish ‘science’ and/or determine policy require a level of faith and are dangerous.

        in addition, there are externalities.

          1. Barkley Rosser

            Another one is “validate the math.” Does this mean that following rsm’s absurd inspiration paddy thinks we should seek out standard errors on 2+2=4?

          2. paddy kivlin

            is that from a movie?

            example: i have a concept for a thing, it operates in a system (external helps and hindrances) and it has to meet requirement/expectations w/in those ‘other 2 ‘views”, a triad if you present it to a student or a decision maker…

            barkley rosser early in the model concept the triad is a set of pictures…. we do not get to design of experiment until we have done a lot of design and testing…

            a disciplined approach to modeling ….

            that is the theory rarely done well.

          3. Barkley Rosser


            Wow, you really have been hanging out in macroduck’s new “Error Bar” a bit too much.

            In response to my comment on your silly remark about “validate the math” you present some supposedly good way to present ideas. Yo describe it as a “triad.” However, and this may be either me not reading very carefully or you writing very poorly, but it looks like you have only two parts for this supposed “triad,” a concept that “operates in a system” and that “it has to meet requirements.” Hmm.

            Even if there is a third thing in there to make a proper triad, what any of this has to do with a discussion of the various proposals that have either been passed or are under discussion in the Congress right now is pretty mysterious to me at least.

        1. Ivan

          I think the psychology is quite simple. If you can “deny the experts” you can make up your own reality. Those types are a dime a dozen. It is basically the playbook of Fox news. They don’t counter – they just “question”. Interaction is a waste of time.

          1. baffling

            we get plenty of that on this site. think corev and his continued “questioning” of climate scientist. now this is an individual who couldn’t conduct a coherent analysis if you held his hand, but continuously thinks he has found some “gotcha” moment in the data that all the experts in the field have overlooked. i don’t mind when these types restrain themselves to their monday morning quarterback routine. but it is annoying when they impede or impact real world issues the rest of of face.

  2. pgl

    The moderates wanted a scoring of BBB before they can support it. It seems to me they have one thanks to your hard work. OK moderates – no more stupid excuses. Pass it.

  3. pgl

    So with the passage of BBB, we can expect 4% real GDP growth in 2022? Why would any Democrat running for reelection not support this?

    1. paddy kivlin

      how you going to get 4% gdp growth in 2022?

      the children at dept of energy cannot deplete the national petroleum reserve enough to keep the lights on in the usa if we have a winter like texas has last feb.

      the delta strain seems to not care if people are vaccinated, and no one is looking to modify (see the darpa spec) the mrna/dna for new varuants….

      what in the bbb is cueing increase in labor participation?

      i could go on.

      models and simulations are usful if you know their limits, economic models from the ruling classes have strcit limits.

      predictions are hard especiially when the seer is elling!

      1. Menzie Chinn Post author

        T.Shaw: paddy kivlin I think you are misreading the Moody’s Analytics table. I’m not sure what is the source of your confusion (y/y vs q/q SAAR, or what baseline to use).

        Come back and ask when you understand how to read the table.

        1. Barkley Rosser


          I think you were responding to paddy kivlin, not T. Shaw. Aside from noting all the building infrastructure activity that is in these that he does not mention, one can pick on him by noting that one can take an extra 2% growth and add to it another 2% growth and one will get 4% extra growth, :-).

      2. macroduck


        Of course you could go on. And on. And on. What you write is unconstrained by fact, so you can write endlessly. Also, like rsm, you’re aping the tactics of Glenn Beck – pretend to be “just asking” when you’re actually just skipping the hard work of making a legitimate point. Well, let me help you by addressing some of the “questions” you’ve raised.

        Build Back Better aims to provide universal access to pre-kindergarden schooling. That should allow more time for the parents of young children to work. That’s how BBB helps raise the participation rate.

        Of course, you asked a trick question. Growth in output relies on increased inputs of labor OR capital OR productivity OR any combination, but you limited your question to labor. Kinda dishonest. You also limited your question to Build Back Better, when the infrastructure bill already passed into law is designed to increase productivity through an increase in the public (and utility) sector capital stock. Wildly dishonest. But then, you’re a dishonest guy.

        Oh, and your assertion that existing vaccines don’t work on the delta variant? Also dishonest. As to your claim that “nobody” is working on the problem of vaccines for new (and future) variants, that’s dishonest, too. Or just ignorant. DARPA is not the only driver of vaccine research, just a source of direction.

        Nor should anyone take seriously your mumbling about the DOE and the “national (sic) petroleum reserve”. It’s the Strategic Petroleum Reserve, and it’s purpose is not price manipulation, as you suggest. It exists to deal with supply interruptions – strategic stuff. And the problem in Texas was created by Texas and has nothing to do with the SPR or even with petroleum. Texas messed up natural gas and electricity delivery. Go, Longhorns!

        paddy, it’s clear you’re trying to confuse people with the silliness you write, but I’m not sure you’re up to the task. Faux News tricks work on Faux News viewers, people who are begging to be told what to think. You’ve spent too much time swallowing that stuff to know how ridiculous it seems to normal people. Seriously, all you’re doing is stroking yourself and cluttering up Menzie’s comments section.

      3. baffling

        this is in response to paddy’s comment “the delta strain seems to not care if people are vaccinated”

        “In October, 25 out of every 100,000 residents of heavily Trump counties died from Covid, more than three times higher than the rate in heavily Biden counties (7.8 per 100,000). October was the fifth consecutive month that the percentage gap between the death rates in Trump counties and Biden counties widened.

        Some conservative writers have tried to claim that the gap may stem from regional differences in weather or age, but those arguments fall apart under scrutiny. (If weather or age were a major reason, the pattern would have begun to appear last year.) The true explanation is straightforward: The vaccines are remarkably effective at preventing severe Covid, and almost 40 percent of Republican adults remain unvaccinated, compared with about 10 percent of Democratic adults.”

        This came from The Morning, a daily newsletter from the NYT. The data is very clear. If you look at the nation on the county level (rather than state), counties that voted trump have fewer vaccinations and far more covid morbidity. This is what the data showed in 2021. In 2020, the difference did not really exist. The divergence occurred AFTER the vaccines were distributed. The figures of for data are outright startling. Sorry its behind a paywall.

        so i ask you paddy, on what data are you supporting your assertion that the delta variant does not seem to care if people are vaccinated. because the data we see in the united states CLEARLY shows that assertion is completely ignorant. its almost as though it has simply been made up? care to provide the evidence upon which it was based? paddy? are you still there?

      4. pgl

        “what in the bbb is cueing increase in labor participation?”

        Helping with child care expenses might just increase the number of women in the work force. Of course you and Josh Hawley see that as causing men to watch porn.

  4. T. Shaw

    Apologies to AC/DC:
    We’re on the highway to hell.
    No stop signs Speed limit.
    Nobody’s gonna slow us down.
    Like a wheel Gonna spin it.
    Nobody’s gonna mess us around Hey!

      1. T. Shaw

        “And IT’S FREEEEEE!”

        You guys aren’t as lucky as I.

        I’m retired and all day the TV has on guys selling Medicare supplement plans.

        One of them is 1970’s TV icon Jimmie “J. J.” Walker, “Kid DYN_O_MITE!”

        He has the words of the prophets. He screams, “And, it’s free!”

        BTW every night I lay for you guys. For as long as you live., there is hope you will come to better minds.


        1. Moses Herzog

          This is intentional, they are trying to drive you insane with repetition of the same ads until you have a nervous breakdown and get cable or 3 net streaming services. Little did they know you were already insane.

  5. macroduck

    Our news-spewers need a fresh “story” with great frequency to hold the public’s interest. Until Friday, the story had been that Democrats had lost elections and that’s baaaaad! Suddenly, startig on Friday, our news-spewers tell us Joe Biden is giddy with the passage of infrastructure spending legislation, images of young kids getting Covid vaccines and a really good jobs report. Hurray for the news-spewers, they have a fresh story.

    Next thing you know, when Menzie offers an analysis of the economic implications of some of Biden’s new giddiness, our local lie-spewers show up to claim that up is down, numbers are scary, petroleum is natural gas, the lights are about to go off and everybody is going to die of Covid. Oh, and that Texas is the entire country. Dang, Friday’s giddy Biden story must have really got some diapers in a twist!

    Well, let me snug those diapers just a little more. Could it be that Manchin wants a CBO scoring of Build Back Better not as an excuse to vote against it, but as an excuse to vote for it? Could it be that Democrats are going to roll into an election year with the kind of spending that prevents recession? (Sorry, Professor Blanchflower.) Ooooo, let’s see what happens!

    1. Moses Herzog

      I’m getting tingles. This is better than ASMR with some hot chick.

      BTW, I always have my diapers snug. Leave the waist band alone.

    2. baffling

      hope you are right. but it reinforces my belief that the time to negotiate and change the plan is done. need to move on with the action and a vote. something is better than nothing. infrastructure passed quickly, as it should have. next lets pass the spending bill. take something now, and keep working on getting more over the next two years. don’t need to hit a home run. singles and doubles score runs together as well.

      there was an article on jayapal on cnn yesterday
      she seems to understand the idea that to win the war, take care of the little battles you can win now. democrats let the internal wedge get a little too big recently. they need to be more disciplined in the midterm cycle. conservatives failed to repeal obamacare for the same reason. too much ideology hurts progress.

  6. Barkley Rosser


    I think you were responding to paddy kivlin, not T. Shaw. Aside from noting all the building infrastructure activity that is in these that he does not mention, one can pick on him by noting that one can take an extra 2% growth and add to it another 2% growth and one will get 4% extra growth, :-).

      1. Barkley Rosser


        Apparently you are unable to read and also do not get when you are being ridiculed. I said take 2% growth and add to it another 2% growth and you get 4% growth. I was mocking your incredible remark about “validating the math,” which I ridiculed as you thinking that there are standard errors on 2+2=4. But I get that you are too stupid to even mock. You are incapable of getting it.

  7. rsm

    How can you respond to the gut-level reasoning Daniel Lacalle uses in today’s zerohedge article: “US citizens may think that the government pays for this plan, but it is wrong. Consumers and taxpayers will suffer the rise in cost of living added to higher taxes”?

    Rather than use your own cherry-picked, manipulated statistics, reported without confidence intervals, to counter his cherry-picked narrative, why not simply solve inflation once and for all with indexation?

    1. Menzie Chinn Post author

      rsm: (1) So your preferred source has less than 240 google citations for a professional career spanning 30 years? (2) full indexation locks in a relative price; in a modern market-based economy, changes in relative prices is often the means by which adjustment is effected.

      However, your citation of a zerohedge article fully confirms my views of your ability to undertake critical analysis.

        1. pgl

          “The problem of the “transitory inflation” argument is that it is a fallacy when you look at accumulated inflation. If the Consumer Price Index rise is 5 percent in 2021 and, say, 3 percent in 2022, they will say that inflation is down, but you and I will have seen our real wages and savings eroded by more than 8.1 percent.

          This is from rsm economic guru. Yes – this nutcase actually ignores entirely any increase in nominal wages over the 2-year period. Hey rsm – another case of not presenting his statistical errors!

          I’m sorry but this Mises Institute dude should return his Ph.D. as this writing is quite garbage.

      1. Moses Herzog

        Menzie, maybe rsm is just picking out the little pieces of corn when ZH finally finishes relieving themselves. Try to look at the positive side.

    2. Barkley Rosser


      Wow, your head really is just a solid block of I do not know what, but certainly not brains. You are told over and over that there are confidence intervals on a bunch of these statistics that Menzie is citing here. But you persist in making mocking remarks about how something that does not exist is not being presented.

      Look, none of us are lying about this, even if paddy kivlin or T. Shaw or you think so. Where get confidence intervals is in models using regressions, and when Menzie uses those he reports them. But a lot of what he posts here does not do so. And the statistics you keep demanding such intervals for are often government-generated ones, and these simply do not have standard errors or confidence intervals or any of that. Some of them are subject to revision, and they have varying degrees of imprecision. But the government agencies are not “manipulating” them as you suggest. That is just an out and out lie, but we know that people like you do not hesitate to lie and lie and lia and lie ever and over and oaver and over again. It really becomes quite disgusting after awhile.

      And regarding those matters of degrees of imprecision, it looks to me that Menzie in particular has done a serious job of noting those degrees of imprecision. Your repeated comments on this sort of thing are becoming both increasingly stupid and increasingly nauseating.

        1. Barkley Rosser

          Although rsm (and paddy and T. Shaw) have stayed quiet on this, I want to pound in a bit more strongly how hyocritical commentators here are who engage in arguing that government agencies are “manipulating” statistics, quite beyond the silly non-issue of them not providing confidence intervals for estimates for variables for which these cannot be meaningfully estimated or reported.

          So when Trump was running in 2016, he denounced reporting of declining unemployment rates, which had been declining since not too long after Obama became president. He declared that the BLS was “manipulating” the numbers for political purposes and then quoted other measures of unemplloyment rates that are higher, somehow not noticing that those were also declining. however, once he entered office, and the BLS reported further continuing declines of unemployment rates, well, suddenly the BLS was no longer “manipulating” the numbers but was being a good government agency accurately reporting numbers that he felt made him look good, although especially for the first cuople of months he was in office nothing he had done had any effect on that, just more of the good news left over from the Obama administration.

          I see exactly the same thing GOPs do when commenting on elections now. It is “If I win, great; if you win, the election was stolen.” Indeed i VA GOP was already selling that the governor’s race was rigged and would be stolen, with Trump weighing in on this garbage. When GOP’s Youngkin won, Dem McAuliffe conceded the next morning and congratulated him, end of story, with no mention from GOPs of how the election was going to be stolen.

          Now, as it turns out, the margins in the VA and NJ governor races ended up being about the same, about 2 1/2%, although in NJ the Dem won. But the GOP candidate did much better than expected, with last minute polls showing Dem Murphy with something like an 8% lead. But in losing the GOP candidate has not acted like the decent human being McAuliffe is in VA. He has refused to concede and is claiming the election was rigged and stolen, and I have no idea how long this anti-democratic nonsense will go on.

          So, we have these Trumpist commentators who see a government number, or maybe an econometric study, that they do not like. So they start spouiing like Trump in 2016, “manipulation of statitistics by government agencies!!!” with rsm adding his inane and idiotic comments about needint to report nonexistent confidence intervals. Seriously major gag here for this rank and stinking hypocrisy by several here.

          1. Baffling

            You seem to think the modern gop is filled with integrity, and would be appalled at the thought of acting hypocritically Silly rabbit, that ship sailed long ago.

    3. pgl

      ‘There is no such thing as “multi-cause inflation”. What Biden calls “speculation” is simply more money going to the same number of goods.’

      My goodness – we have a new candidate for the dumbest comment in the history of mankind. And beyond that – your joke of an economic expert did not give us a confidence interval on anything he wrote.

    4. baffling

      “why not simply solve inflation once and for all with indexation?”
      indexation will not solve inflation. it will still exist. ever heard of a feedback loop?

  8. pgl

    “Barkley Rosser
    November 7, 2021 at 6:56 pm
    Another one is “validate the math.” Does this mean that following rsm’s absurd inspiration paddy thinks we should seek out standard errors on 2+2=4?”

    This reminded me of some other rsm type who argued that both pi and the natural exponent were the same as they are both approximately 3. Speaking of Fuzzy Arithmetic!

  9. joseph

    So, is Dynamic Scoring in or out these days at the CBO? In the past Republicans twisted arms at the CBO to incorporate their magical thinking into budget scoring for tax cuts. Is that still a thing? I assume dynamic scoring, Republican style, would work against the tax increases in the Democrats bill.

    1. pgl

      Dynamic Scoring should also apply to the benefits to long-term growth from infrastructure investment and education.

Comments are closed.