As the calendar turns to August, lawmakers in both chambers of Congress are moving full speed ahead on two enormous spending packages: a $1 trillion infrastructure bill supported by Senators from both parties and a $3.5 trillion reconciliation bill, supported only by Democrats, that would significantly expand federally-funded spending programs. Both pieces of legislation, which mirror President Biden’s American Jobs Plan and American Families Plan, contain deeply concerning spending increases. Both also contain potentially harmful tax hikes, though the infrastructure bill is stripped of some of President Biden’s most troublesome corporate tax proposals. Nonetheless, taxpayers concerned about federal debt and deficits should be wary of claims that one or both bills are fully paid for.
NTU analysts recently pointed out that the bipartisan agreement on infrastructure is full of gimmicky offsets that may not come to pass, leaving taxpayers on the hook for huge increased deficits (and interest payments on the debt) that result from lawmakers missing their “pay-for” mark. Just the latest item of concern is that lawmakers claimed $205 billion in offsets from repurposing COVID-19 relief funds, but some simple math indicates that rescissions from COVID-19 legislation only adds up to $42 billion. Lawmakers may play even more games when finding offsets for the $3.5 trillion reconciliation bill, with reports indicating Democrats may rely on an Internal Revenue Service (IRS) budget increase and the repeal of an already-delayed Medicare Part D regulation to help pay for expanded social programs. NTU and our sister organization NTU Foundation have pointed out that both efforts come with highly uncertain returns on investment and should not be counted on as “pay-fors.”
Instead, Congress needs to offset any new spending with real spending reductions elsewhere in the budget. They could also consider repealing some tax expenditures that overwhelmingly benefit the wealthy and create distortions in the tax code. Below is a list of potential offsets lawmakers could seek in the weeks ahead. We will start with the infrastructure bill, and will turn to the reconciliation bill in future analysis. Estimates are pulled from the Congressional Budget Office (CBO) or the Joint Committee on Taxation (JCT) unless otherwise noted.
Repeal COVID Spending That Was Unrelated to the Crisis or Is No Longer Necessary
NTU has identified hundreds of billions of dollars in potential offsets from the various COVID-19 bills -- including the American Rescue Plan Act (ARPA), the December relief bill, and the CARES Act -- that was unrelated to the COVID-19 public health and economic crises or that is no longer necessary given the changing state of the U.S. economy.
Claw back ARPA funding from the Elementary and Secondary School Emergency Relief Fund (ESSERF) and the Higher Education Emergency Relief Fund (HEERF) proposed to be spent after the end of fiscal year (FY) 2022: $105 billion in offsets: Though the American Rescue Plan Act provided a combined $162 billion to elementary, secondary, and higher education schools ($123 billion to the former two, $39 billion to the latter), CBO projected that a majority of the money would not be spent in FYs 2021 and 2022. Lawmakers could claw back funding projected to be spent in FY 2023 and beyond, given that at that point (September 30, 2022 and beyond) the pandemic is unlikely to be a significant driver of spending by educational institutions. Clawing back all projected funds beyond FY 2022 could return $105 billion ($20 billion from higher education and $85 billion from elementary and secondary schools). It is worth noting that would still leave schools with $57 billion in funding from the American Rescue Plan, $54.6 billion from the December relief bill, and $13.4 billion from the CARES Act, according to the Committee for a Responsible Federal Budget (CRFB) -- plus $10.2 billion in additional education funding to non-public schools, governors, and “innovation grants.” That’s about $1,750 in emergency funding for each student in the country.
Repeal the multiemployer pension bailout: $83 billion in offsets: One of the most wasteful portions of the American Rescue Plan Act was a multibillion-dollar multiemployer pension bailout that tracked with some lawmakers’ priorities from before the pandemic ever existed. NTU argued that this bailout had no place in a COVID relief bill, and we continue to believe that. Given the Pension Benefit Guaranty Corporation just released an interim final rule on these bailout funds a few short weeks ago, lawmakers likely still have some time to claw back this wasteful spending -- but not for long. Pension reform should be addressed on its own merits, not as an expensive add-on to unrelated emergency legislation.
Eliminate the unreleased second tranche of funding to state governments: $79 billion in offsets: The Treasury Department held back nearly $79 billion of the $195 billion in funding for state governments from the American Rescue Plan Act for 30 states whose unemployment rates are less than two percentage points above pre-pandemic levels. The Treasury Department has the ability to hold the second tranche for up to 12 months. This is valuable time that Congress could use to rescind much of the funding in this second tranche for states whose economies are already near or fully back to pre-pandemic levels. The fact that 20 of these 30 states also ended their participation in the federal unemployment insurance (UI) boost early is another indicator that the states expect their economies to come roaring back in the months ahead. According to NTU’s March analysis, $6 billion to $16 billion would have been a more appropriate funding level for state governments than the nearly $200 billion provided in the American Rescue Plan Act, and the reality of huge budget surpluses in a number of states only underscores just how excessive these handouts to states were.
Rescind undisbursed appropriations for the Provider Relief Fund: $30 billion to $40 billion in offsets: According to the Government Accountability Office (GAO), as of May 31, 2021 around $44 billion of $178 billion (25 percent) appropriated to the Provider Relief Fund across multiple COVID relief bills had not yet been disbursed. The Department of Health and Human Services (HHS) told GAO that some undisbursed funds had been reserved “to respond to needs not identified in the spending plan,” while some undisbursed funds ($29.1 billion) have not been reserved. Depending on how lawmakers choose to claw back the funds, we believe they could offset new spending by between $30 billion and $40 billion. Lawmakers considered using these uncommitted, unspent funds as an offset for the infrastructure bill before passing on the option; they should reconsider.
Repurpose Transit Infrastructure Grants from COVID legislation: $30 billion to $40 billion in offsets: Also according to GAO, as of May 31, 2021 around $42.4 billion of $69.5 billion (61 percent) appropriated for Transit Infrastructure Grants at the Department of Transportation in COVID relief legislation had not yet been disbursed. Congress could repurpose undisbursed funds for the infrastructure bill, given lawmakers are attempting to fund transit projects in the infrastructure bill in the first place.
The Bank of Offsets Above Could Total Between $327 Billion and $347 Billion
Combined with the $50 billion in real offsets from the infrastructure bill ($41.8 billion in rescissions plus $8.2 billion from ending the Employee Retention Tax Credit, or ERTC, early), lawmakers could offset $377 billion to $397 billion of the infrastructure bill’s costs alone. They could completely 1) replace several of the gimmicky offsets in the current bill -- including pension smoothing ($2.9 billion), Strategic Petroleum Reserve sales ($6 billion), custom user fee extensions ($6 billion), a mandatory sequester extension that is unlikely to actually take hold ($8.7 billion), spectrum sales that should be legislated separately ($87 billion), and the Part D rebate rule delay ($49 billion), 2) account for the $155 billion that is now missing from the $205 billion “repurposing of certain unused COVID relief dollars), and 3) remove harmful provisions related to cryptocurrency ($28 billion), government sponsored enterprises or GSEs ($21 billion), and Superfund taxes ($13 billion), and still likely have some room to spare.
Lawmakers would also be replacing some provisions (like the rebate rule delay, mandatory sequester extension, and custom user fee extension) that are not projected to actually offset new spending until years from now with many new offsets that go into effect immediately.
Enacting real spending offsets, as opposed to the gimmicks currently included in the package, is a more fiscally responsible path for lawmakers. To be clear, Congress ought to be enacting spending reductions like those laid out here regardless. While we would prefer for all the above offsets to go toward deficit and debt reduction, they would ultimately make for more responsible “pay-fors” than what is currently in the $1 trillion infrastructure bill.