We have no clue how much this bill would actually cost, and we have no reason to believe it’s anywhere close to paid for.
The White House today announced a framework for its “Build Back Better” plan. We have no reason to believe much of it is true.
Initially, progressives wanted $6 trillion. Biden said he wanted $3.5 trillion. Today’s framework is for $1.75 trillion — maybe. (There’s another $100 billion in immigration-related spending that isn’t included in that total.) The framework also has $1.995 trillion in offsets. That means, according to the framework, this plan would reduce the national debt by $245 billion over the next ten years.
Biden has promised the bill would be fully paid for (erroneously equating that with the bill being free). But he has never promised that it would reduce the debt. The memo of understanding between Joe Manchin and Chuck Schumer said that any revenue over $1.5 trillion was to be used for deficit reduction. But this framework does not keep that promise, since it raises $495 billion more than $1.5 trillion, but only reduces the debt by $245 billion.
Remember, most Democrats wanted a much larger bill than the one this framework presents. We have every reason to believe they will spend every penny of what they raise — and then some. One of the biggest line items that some Democrats want is not included in the framework: the restoration of the state and local tax (SALT) deduction. Apparently, that does not mean it won’t happen. Laura Davison, a tax reporter for Bloomberg, tweeted that House Ways and Means Committee chairman Richard Neal and Speaker Pelosi have assured New York and New Jersey Democrats that the SALT deduction will be included in the final bill. According to the Tax Foundation, a full restoration of the SALT deduction would cost $380 billion, more than compensating for the supposed $245 billion in debt reduction.
Democrats’ pay-fors are also wildly optimistic. They claim $400 billion in revenue from stepping up IRS enforcement. They won’t get anything near that. At least $400 billion is more realistic than the $700 billion the Treasury department said it would raise in May or the absurd $1 trillion some congressional Democrats were fantasizing about in July. But it’s still much higher than they’re likely to get. The framework does not say how much extra money the IRS will receive, but the CBO found in September that nearly doubling the IRS budget would net $120 billion in revenue over ten years.
The biggest single tax revenue category from the original Ways and Means Committee plan was increasing the corporate-tax rate to 26.5 percent. The Joint Committee on Taxation (JCT) said that would raise $540 billion. The framework does not include a corporate-tax-rate increase at all. It doesn’t include an increase in the top-bracket tax rate, which was supposed to raise $170 billion under the Ways and Means plan. It doesn’t include the increased taxes on tobacco and nicotine products either. In fact, today’s framework includes virtually none of the proposals that the JCT scored in the Ways and Means plan.
The framework adds “a new surtax on the income of multi-millionaires and billionaires — the wealthiest 0.02 percent of Americans.” The problem with making a tax base that small is that revenue will be very unstable. Our mindbogglingly complex tax code will always provide new avenues for well-paid tax accountants to find ways to avoid taxes that specifically target their clients. Be very suspicious of the framework’s claimed $230 billion in revenue from that tax.
The White House also claims to raise $250 billion from closing “the loopholes that allows [sic] some wealthy taxpayers to avoid paying the 3.8 Medicare tax [sic] on their earnings.” Anytime a politician promises big revenue gains from closing an unspecified loophole, it should trigger your B.S. detector.
Democrats are basically saying they can fund at least $1.75 trillion in new spending by taxing a handful of wealthy people and cleaning up waste, fraud, and abuse. This framework is spin from the White House and should not be taken too seriously.
This framework is consistent with Democrats’ strategy of keeping the reconciliation bill in flux to make sure the CBO can’t score it. Then, once they cobble something together, they want to pass it as quickly as possible. Even today, there is no final legislative text to give a comprehensive cost estimate. We have no clue how much this bill would actually cost, and we have no reason, based on Democrats’ past behavior and the budget math in today’s framework, to believe it’s anywhere close to paid for.