Thursday, June 18, 2026 at 06:00 PM
Original source
CBO Publications
MacroLab briefing generated by AI for informational purposes. Original reporting by CBO Publications. Not financial advice.
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The Congressional Budget Office (CBO), a nonpartisan agency that analyzes the effects of proposed laws, published an explanation of how it estimated the impact of certain tax and Medicaid changes in a bill being considered in 2025. Specifically, the CBO examined how changes to individual income taxes (the taxes people pay on wages and investment earnings) and Medicaid (the government health insurance program for lower and middle income people) would affect how many people want to work and how much they work. The analysis looked at the labor supply, which is the total amount of work that people are willing and able to provide to the economy.
When people work less, the economy produces less, which can slow growth and reduce tax revenue the government collects. The CBO's analysis matters because tax and Medicaid changes can influence whether people decide to work at all or work more hours. For example, if taxes go up, people keep less of their paycheck and might choose to work fewer hours. Similarly, if Medicaid benefits change, people who rely on that health coverage might make different choices about working. Fewer workers or fewer working hours means less economic activity, potentially lower wages for those who do work, and less money coming into government coffers. This ripple effect touches inflation, job growth, and the government's ability to pay for programs.
Watch whether the CBO's predicted decline in the workforce actually happens in real data about employment and hours worked over the next one to two years. If unemployment starts rising or the number of people in the workforce shrinks faster than expected due to demographics alone (aging population), that would signal the effect is real. Also monitor whether wages rise sharply, which could happen if fewer workers are available and employers must pay more to attract them. Finally, track government tax revenues to see if they come in lower than normal projections, which would suggest fewer people are working or earning as much as expected.