While fueling progress on climate change, access to healthcare, and income inequality, the Biden plan would add to record debt. If it passes, how will voters make responsible budgeting an issue next year?
Those trying to understand in detail where their tax dollars are going – and whether Washington is tackling the nation’s biggest problems, and in a fiscally responsible way – can easily get bogged down by the partisan rhetoric.
Government budgeting is thick with accounting intricacies and special jargon. Enormous amounts of money, often rendered as digits to the right of the decimal, make it dangerously easy to confuse millions, billions and even trillions. The tax code is mind-numbingly elaborate. Intricate rules place the bulk of spending on autopilot while other programs last just a year at a time. Estimating the cost of many proposals requires predicting economic performance far in the future, and making assumptions about whether the next policymakers elected to govern in Washington will sustain or reverse the taxing and spending decisions of their predecessors.
Comprehending these complexities is especially important this fall, as Congress debates the biggest enhancements to the social safety net since the 1960s and the biggest government investment ever in slowing climate change – right after endorsing the biggest infusion of federal resources into infrastructure in a dozen years.
The good news is that, for those willing to wade into the details, the system is ultimately transparent. Government rules make sure lawmakers and the public have reliable, if not guaranteed, portrayals of the fiscal consequences of policies before they’re enacted.
The latest pictures reveal a hard reality. To get his public works package enacted, and to give what he calls his Build Back Better agenda a fighting chance of passage, President Joe Biden chose to make an array of concessions that enabled him to squeeze $6 trillion worth of aspirations into a pair of multifaceted measures with bottom lines the White House totals at f$1.2 trillion (infrastructure) and $1.9 trillion (safety net and climate).
And, contradicting the White House assertions that both packages will be “fully paid for” with a collection of offsetting tax increases and other revenue-raisers, the nonpartisan Congressional Budget Office (CBO) says that’s not true in either case. During the next decade the infrastructure law will add at least $256 billion to deficits, and therefore the debt, the agency says, while it pegged at $160 billion the cumulative red ink in the version of the climate and social policy bill the House passed Nov. 19.
This underscores the simple and stark choice for voters, and the people they decide to send to Capitol Hill and the White House: generate more revenue, or incur more debt. Increasing taxes is the only way to maintain the current defense and domestic programs that Americans say they want, while also covering recent and proposed spending on such societal challenges as the COVID pandemic, our warming planet, and inconsistent access to medical care. The only alternative is the economic calamity that will eventually be threatened by the sea of red ink growing much bigger than the entire economy.
Almost all Democrats now in authority are ready to raise taxes on corporations and the very rich to pay for solving the systemic problems they currently see, and accept the century-old notion of federal intervention as the solution of last resort. Almost all Republicans now in authority are wholly unwilling to raise any more revenue, a stand buttressed by their view of the climate and healthcare challenges as exaggerated or non-existent – and not much of the federal government’s concern in any case.
Still, if knowledge is a prerequisite for making progress, then the current legislative process does not do disservice to the cause of a more fiscally responsible government. Those Americans motivated by that goal only need to have the diligence to get past the political rhetoric to focus on the details.
Transparency and Non-Partisan Accounting
Two tools make that much easier. First, legislative language must be made available in advance for all to analyze, shedding light on any creative accounting or budgetary gimmickry, such as making proposals temporary to hold down their projected cost while fully expecting such early expiration dates will be changed. Second, the task of officially estimating the 10-year fiscal and economic effects of legislation is exclusively in the hands of the CBO, which has a longstanding reputation for thorough if not infallible scorekeeping without any partisan preference.
These transparency and accounting mandates have their limits, to be sure. The right to see legislative text does not come with the skill to understand every nuance, let alone the means to eliminate any budgeting chicanery. And the CBO’s powers do not include an ability to know the future, so even its sophisticated behavioral and economic models have their limits.
Still, making the most of the rules is especially vital now, with the national debt surging toward $29 trillion while Washington is making new policies trillions of dollars at time: $3.4 trillion allocated last year to rescue the nation from the pandemic, another $1.9 trillion for COVID-19 recovery this year, the just-signed program to modernize the nation’s infrastructure in the next five years – and now the even more expensive package to give Americans a better environment, healthcare, education, and housing.
Just how expensive would it be to enact both centerpieces of the Biden agenda? No one can say with both precision and certainty, given the myriad economic, sociological, and political variables that will shape their eventual cost.
The infrastructure law authorizes $550 billion in the next five years for new investments in roads, bridges, rail lines, pipes, ports, and broadband Internet service. The remaining $650 billion assumes continuing the current pace of existing annual outlays for highways and other public works. Much of the money in both halves of the measure is not guaranteed, however, and is instead at the mercy of the annual partisan budget battle in Congress.
And, hours before the House passed its version of the safety net and climate package, CBO concluded the bill would contribute $160 billion to deficits and debt by 2031 – probably a conservative estimate, given how three of the bill’s most expensive and politically popular components would terminate before the decade is through.
Those early expirations would hold down their cost, on paper and in the short term. But there would be ample political pressure on future Congresses to extend the three programs, and nothing would prevent them from doing so without any new revenue to pay for them.
In theory, the runup to those decisions would create an opening for “budget hawks” to win the argument that additional revenue must be found to match additional spending. Their success, of course, would depend on the rise of a political movement that gets a critical mass of politicians elected who prioritize this pro-tax form of balanced budgeting. Midterm election patterns combined with once-a-decade gerrymandering make it remote that it will happen in 2022. Instead, a return of divided government is highly likely, with Republicans taking over the House and having sufficient power to stop all tax talk in its tracks.
The Challenge to Predicting the Future
Biden characterizes his latest version of the Build Back Better plan as amounting to $1.85 trillion worth of new spending and tax breaks over the next decade. The Treasury says the bill would generate $2.15 trillion in new revenue or other offsets, so by the administration’s calculus the package would be “paid for” with $300 billion left over.
CBO’s comprehensive estimate concluded all those projections were a bit off. It said the total cost (the sum of $1.64 trillion in direct government outlays and $563 billion in tax breaks) would be right at $2.2 trillion. And it said all the offsetting revenue would be no more than $2.04 trillion. Not quite paid for, in other words.
There is a singular reason for that difference. The White House assumes its proposal to beef up the IRS, by spending $80 billion to double the number of agents assigned to crack down on tax evasion, will reap $400 billion in revenue over a decade – about one-quarter of what’s needed to pay for the package. But the congressional scorekeepers decided that was overly optimistic, estimating collections from tax cheaters would be half as much, just $207 billion.
The deterrent effect of the new wave of auditors on would-be tax dodgers, CBO believes, would fade much quicker than the administration believes. If the agency is proven wrong and Biden proven right in coming years, then Build Back Better would cover its own expenses
But estimating that return on investment was particularly challenging because the IRS has not seen such a surge in its enforcement budget in modern times, so no data based on precedent was available to the CBO analysts. Instead, the agency had to rely on limited research into corporations’ and millionaires’ tax avoidance behavior.
Similar challenges confronted CBO when it came to predicting the budgetary consequences of several proposed new programs, including new subsidies for child care, pre-K, family and medical leave, and hearing aids. Significantly different cost totals could come from shifting, even modestly, estimates of how many parents, employees, and older people would claim the new benefits over 10 years – projections that call for judgments about societal shifts, human behavior, and the future of work as well as rigorous economic analysis.
Sometimes CBO’s staff of 265 policy expertts and economist have next to nothing to go on, as happened 20 years ago when it had to estimate the number and severity of future terrorist attacks to “score” the cost of the new government backstop for terrorism risk insurance claims created after the 9/11 attacks.
The most obvious caveat when estimating the effect of Build Back Better on deficits and the debt is that the drafting is not yet finished for sure. Notably, the bill the House passed along almost pure party lines would guarantee most workers four weeks of paid family and medical leave annually starting in 2024 and create a new federal program to defray the cost, with a 10-year price tag CBO pegged at $205 billion. But in the Senate, which plans to take up the measure in December, Joe Manchin of West Virginia has been opposed to paid leave and other elements of the bill. He and another centrist Democrat, Kyrsten Sinema of Arizona, have expressed deep concern that the legislation does too much, while Vermont progressive icon Bernie Sanders would like to see the legislation do even more.
All this means further changes may be made to secure their votes. With all 50 Republicans opposed, passage will require the votes of all 50 Democrats and Vice President Kamala Harris to break the tie. The Democrats are using a budget process called reconciliation, which prevents Senate Republicans from killing the measure by filibuster.
Budget Trickery or Electoral Spark?
CBO is required to estimate the 10-year consequences of each bill as written, using its own economic projections and generally assuming existing spending and tax law stays in place. But independent analysts are free to do their own scorekeeping, based on whatever assumptions they choose.
The Committee for a Responsible Federal Budget (CRFB), for example, says the House version of Build Back Better would cost $2.4 trillion by 2031 while its taxes and other offsets would come up $200 billion short of covering the expense. But that prominent deficit reduction advocacy group warns those numbers could prove to be a fundamental understatement – and that outlays could reach $4.4 trillion to $4.9 trillion in a decade. That’s mainly because Biden’s measure calls for three of the most expensive line items to last less than the decade:
- An increase in the child tax credit, enacted as a pandemic economic relief this spring, would continue to provide $250 to $300 monthly per child to low-income and middle-income families – but only in 2022.
- Subsidies for people covered through the Affordable Care Act, and insurance tax breaks for many Medicaid beneficiaries, would be expanded – but only through 2025.
- Federal financial support for child care, and payments to make pre-K free for all children ages 3 and 4, would be created – but last only until 2027.
A similar warning has been issued by the University of Pennsylvania. Its Penn Wharton Budget Model, an economic forecasting tool often used by ideologically unaligned advocates, estimated that the cost of extending those three proposals through 2031 would drive the cost of the package to $4.26 trillion. And absent any additional tax hikes, Penn Wharton says, that would mean a 25% increase in the national debt over a decade.
“Unfortunately, the framework relies heavily on the massive gimmick of arbitrary sunsets to make the numbers work”, laments the CRFB president, Maya MacGuineas.
Since the three proposals would each benefit several million voters, there would be significant if not overwhelming pressure on even a politically divided Congress to preserve them beyond their expiration dates. But, at the moment, there is no such pressure from the electorate to raise sufficient revenue to make the programs budget-neutral for the long run.
If there is a silver lining it’s that the expiration deadlines in the bill would compel future voters, and their elected representatives, to at least confront fresh opportunities for fiscal responsibility a few years from now and potentially force a choice between sustaining the progress of Build Back Better by raising taxes or abandoning efforts to support families and people in need.
Editor’s note: The Committee for a Responsible Federal Budget has lent its expertise as a content partner in a review of our problem brief on the debt.
Lily Batchelder, assistant Treasury secretary for tax policy, “Preliminary Estimates Show Build Back Better Legislation Will Reduce Deficits”, Nov 4, 2021, https://home.treasury.gov/news/featured-stories/preliminary-estimates-show-build-back-better-legislation-will-reduce-deficits, accessed Nov 18, 2021
Congressional Budget Office, “Senate Amendment 2137 to H.R. 3684, the Infrastructure Investment and Jobs Act”, Aug 5, 2021, https://www.cbo.gov/publication/57406, accessed Nov 18, 2021
Congressional Budget Office, “Estimated Revenue Effects of Increased Funding for the Internal Revenue Service in H.R. 5376, the Build Back Better Act”, Nov 18, 2021. https://www.cbo.gov/publication/57620, accessed Nov 18, 2021
Congressional Budget Office, “Summary of Cost Estimate for H.R. 5376, the Build Back Better Act”, Nov 18, 2021, https://www.cbo.gov/publication/57627, accessed Nov 18, 2021
Committee for a Responsible Federal Budget, “What’s in the House’s Build Back Better Act?”, Nov 8, 2021, https://www.crfb.org/blogs/whats-houses-build-back-better-act, accessed Nov 18, 2021
Penn Wharton Budget Model, “HR 5376, Build Back Better Act: Budget and NMacroeconomic Effects,” Nov 15, 2021, https://budgetmodel.wharton.upenn.edu/issues/2021/11/15/hr-5376-build-back-better-budget-macro, accessed Nov 18, 2021
Press release, “New Build Back Better Framework Relies Too Heavily on Gimmicks”, Committee for a Responsible Federal Budget, Oct 28,2021, https://www.crfb.org/press-releases/new-build-back-better-framework-relies-too-heavily-gimmicks, accessed Nov 18, 2021