With the U.S. House preparing to vote this week on both the infrastructure and budget reconciliation bills, President Biden tweeted that his “Build Back Better Agenda costs zero dollars.” True?
Hardly. Something that costs $5 trillion still costs $5 trillion however one may fund or finance it. Buying a gallon of gas still costs $3.19 (national average, as of today) even though you “pay for it.”
It’s not mere semantics. A massive expansion of the size of the federal government, even one that is “paid for,” implies an obligation on the part of taxpayers to fund it. When the President says that his plan is paid for, he’s really saying it’s paid for by you. And it certainly won’t cost taxpayers zero dollars.
Even the President’s secondary talking point — that his plan “adds zero dollars to the national debt” — doesn’t hold up.The President’s budget proposal released in May proposed over $5 trillion in new spending over ten years, added to the $64.2 trillion already projected to be spent in that time period in the budget “baseline.” This $5 trillion included $2.6 trillion for infrastructure, $1.7 trillion for social programs, and $600 billion in other nondefense spending. On the revenue side, the President proposed raising taxes by $3.4 trillion ($2.1 trillion in business taxes, $756 billion in individual taxes, and $711 billion from added IRS enforcement) and cutting defense and entitlement spending by $214 billion.
Subtracting his proposed new spending with his proposed revenue increases leaves about $1.2 trillion in net costs that would add to the debt. Higher interest on the national debt adds another $163 billion in costs, for a final price tag, as calculated by the Committee for a Responsible Federal Budget, of negative $1.354 trillion. His own White House Office of Management & Budget acknowledged, in a chart titled “Effect of Budget Proposals on Projected Deficits,” that the Biden agenda would increase the $28.4 trillion national debt by $1.355 trillion over 10 years even after accounting for all the proposed tax increases.
The plan being voted on by the U.S. House is significantly different, of course, with them aiming to increase spending by $3.5 trillion (to a total of about $67 trillion over ten years) and offsetting about $2.9 trillion of it with tax increases and budget savings elsewhere. But even this is mostly sleight of hand due to their trick of counting 10 years of tax increases but only as few as 4 years for the new spending or social programs. It’s like me saying I’m going to earn an extra $100,000 over the next ten years and telling my partner we can afford to lease a luxury car that costs $25,000 every year, without saying too loudly, “only for four years.”
As an example, take a centerpiece of the House proposal, the expanded child tax credit. Ten years of the expanded child tax credit would cost $1.3 trillion but their budget documents count it as only costing $556 billion. Why the $700 billion difference? Because the House bill has the expanded child tax credit expire after only four years.
There are many other examples. A special health care rule for those receiving unemployment expires after four years. A tax credit for caregiver expenses expires after four years. A tax credit for providing technology to blind workers expires after five years. The enhanced work opportunity tax credit expires after two years. Only a couple years of Medicare coverage for dental and vision count because the (badly designed) benefit is delayed until 2028. The tax increases, by contrast, are mostly 10 years’ worth.
Why the budget gimmick of counting only four years of spending but ten years of taxes? The main reason is to make $5 or $6 trillion worth of promises fit into just $3.5 trillion worth of budget. The reconciliation process the majority is using allows for the plan to avoid a filibuster but only if it stays within reconciliation limits. If it passes and the bill comes due in four years with a “cliff” crisis, the programs will likely have become so established that it will be easier to raise even more taxes, by another trillion or two, to keep them going.
One last point: tax increases have economic effects aside from added revenue. All experts of all political stripes generally concede, for example, that increasing the capital gains tax causes behavior changes by those with investments affected by the tax. The Tax Foundation reviewed the entire House bill and found that the House plan will raise about $200 billion less than the Democrats think it will, due to these economic effects and leave most people worse off.
Some of the revenue assumptions may also be overly generous. For example, the Administration has proposed adding 87,000 IRS agents and monitoring most bank accounts, believing this added enforcement will raise hundreds of billions of dollars a year, including by retroactively repealing restrictions on levying penalties. Officials are only counting the revenue boost, not any offsetting reduction in economic activity as millions of Americans face new IRS compliance burdens.
Short answer: not only does the Biden program not cost zero dollars, the net cost is being significantly understated by trillions.