The day of reconciliation budget reckoning has arrived. The Congressional Budget Office has finally dug through the thousands of pages of complex policy to determine its score of the "Build Back Better" package. Despite assurances from President Biden that the package was fully paid for, CBO finds a $367 billion shortfall resulting from $1.6 trillion in new spending and $1.3 trillion in higher taxes.
The spending was a bit lower than advertised, resulting from several areas where CBO did not think that the agencies would be able to spend the full amount in the allotted time. CBO also notes that several of the spending programs funded in the five titles of the bill are subject to mandatory sequestration established in the Budget Control Act of 2011 (and extended several times since then as offsets to spending in other bills). CBO's estimate includes these reductions in its estimate.
Aside from those upshots of less spending than expected, there are many concerns about the impact of the bill.
Timing Gimmicks
As noted by many budget watchdogs, the score is also artificially low because of the timing gimmicks used. Through reconciliation, Democrats are providing for temporary extension of several expensive programs that they would like to see made permanent. For example, it would extend by one year the refundable Earned Income Tax Credit, increasing outlays by $10.4 billion and decreasing revenues by $2.9 billion. It also extends for one-year the expansion of the Child Tax Credit, continuing a policy enacted in the American Rescue Plan Act, increasing outlays by $100 billion over the next two years and reducing revenues by another $30 billion over the next two years as well. Many Democrats plan to either extend these provisions again or make them permanent. The Penn Wharton Budget Model has estimated that a permanent extension of the temporary spending in BBB would raise the cost of the bill to nearly $4 trillion, more than double CBO's score (which was based on the timing of spending in the bill).
Front-Loaded Spending, Tax Receipts Come Later
Taxpayers and lawmakers should also be wary of the timing of the spending and revenues in the estimate. Over half of the spending occurs in the first five years ($941 billion, or 58 percent). On the other hand, the revenues are heavily back weighted: just 11 percent of the higher revenues are expected to be collected in the first five years. This means that the vast majority of the expected revenues, $1.12 trillion, are expected to flow to the Treasury from FYs 2027 through 2031.
Unfunded Mandates
When Democrats first tried to bring the BBB to the floor a few weeks ago, House Budget Committee Ranking Member Jason Smith (R-MO) raised a point of order because the House was taking up the measure without a CBO analysis of the unfunded mandates in the bill.
In the new full score, CBO determined that the reconciliation bill would impose unfunded intergovernmental and private-sector mandates that exceed the annual threshold of $85M and $170M, respectively. CBO identified at least $3.6 billion in annual unfunded mandates and wrote that there are other additional mandates in the package whose impact could be significant but is currently unknown.
Budget Gimmick Repeals a Rule That Was Already Delayed
In one of the most egregious examples of cooking the books seen in Congress, the BBB includes $143 billion in savings by repealing a rule that has not yet been implemented and was just temporarily delayed in the Bipartisan Infrastructure Framework signed into law this week. This is a savings that only exists on paper and does nothing but breed cynicism in the way Congress uses budget gimmicks.
State and Local Tax Deduction Gimmick
The BBB would increase the deduction for state and local taxes to $80,000 through 2030 and reset it at $10,000 for 2031, the last year of the reconciliation budget window. This would decrease revenues by $230 billion over the first five years, but because the cap is reset purely for scoring purposes, the score finds that this section would increase revenues by $15 billion over the decade.
Conclusion
This legislation is fraught with problems (with several concerns in addition to those noted above) and will likely only end up adding to the deficit. And it should be remembered that in just a few weeks, lawmakers will need to again grapple with the debt ceiling. This past year, lawmakers could have been working together to address the massive deficit problem that both parties created. Instead, they are pursuing a partisan effort to enact harmful taxes that will not even fully pay for reckless spending levels.