The White House’s quest for a legislatively viable version of its Build Back Better agenda has officially reached the “fake it till you make it” stage.
After a months-long negotiation with his party’s most moderate senators, Joe Biden unveiled a framework for a slimmed-down version of his Build Back Better agenda on Thursday. Initially a $3.5 trillion package of investments in social welfare and climate-change mitigation, the president’s signature proposal now aims to dole out $1.75 trillion over the coming decade, a sum equal to roughly 0.6 percent of projected GDP.
This halving of the bill’s top-line cost is a concession to the austere tastes of Joe Manchin and Kyrsten Sinema. And the framework’s details reflect those senators’ various ideological hang-ups. In effect, the Democratic leadership has put together a list of programs and tax hikes that the party’s right flank hasn’t explicitly ruled out. As of this writing, however, Manchin and Sinema have not publicly endorsed the framework either.
The president’s decision to declare victory on a compromise derives less from an unequivocal breakthrough in negotiations than from the demands of his calendar: Biden is heading abroad to attend the United Nations Climate Change Conference, and wished to demonstrate progress on decarbonization before arriving in Glasgow. Separately, Virginia will hold its gubernatorial election on Tuesday, and polls show Democrat Terry McAuliffe in a dead heat with Republican Glenn Youngkin in that solidly blue state. Democrats believe that passing the president’s bipartisan infrastructure bill before that vote will aid McAuliffe. And since House progressives have refused to support the infrastructure bill until an agreement on Build Back Better is reached, Biden needed to produce a framework today in order to have any hope of making a legislative contribution to McAuliffe’s campaign.
With that said, the $1.75 trillion framework gives us a sense of Biden’s endgame. It’s unlikely that the White House would have released this document if it didn’t believe that the final version of Build Back Better would roughly approximate it. Therefore, the outline is worth evaluating on its own merits. It has good, bad, and ugly aspects.
The Democratic Party barely holds Congress. It can afford no more than three defections on any partisan vote in the House, and its Senate majority exists at the mercy of a coal magnate from a Trump-plus-40 state. Not long ago, conventional wisdom held that such a fragile trifecta would be inadequate for enacting major policy change of any kind. Last November, Matt Yglesias summarized the stakes of the impending Georgia runoff elections thusly: “If the Democrats win, we’re going to have a functioning government, but any legislation is going to have to be substantially bipartisan.”
Judged against this baseline, the $1.75 trillion version of Build Back Better would be a remarkable achievement. As drafted in Thursday’s framework. Biden’s bill would:
Create free and universal prekindergarten throughout the United States, which would be the largest expansion of American public education in a century.
Establish a de facto basic income for working-class families. Previously, Biden’s American Rescue Plan (ARP) increased the maximum value of the child tax credit (CTC) from $2,000 to $3,000 for each child over 6 and $3,600 for each child below that age. Separately, ARP made the child tax credit fully refundable for the first time, meaning that kids whose parents earned too little to owe federal taxes would still be eligible for CTC payments. In effect, this turned the CTC into a near-universal child allowance. The Build Back Better framework only extends the higher-value CTC for a year (meaning that, in 2023, it goes back to being worth $2,000 per kid). But the bill would make the CTC’s refundability permanent. Which is to say: For the first time since Bill Clinton’s welfare reform, America’s poorest families will be guaranteed cash assistance, no strings attached. That is very good news. The refundable CTC has already proven effective at dramatically reducing child poverty. And a large body of sociological research shows that providing cash assistance to low-income families improves their kids’ later life outcomes.
Invest $555 billion into combating climate change. Manchin killed Biden’s Clean Electricity Performance Program, a policy that would have required all electric utilities to draw 80 percent of their power from non-carbon sources by 2030, or else face steep fines. But the West Virginia senator (and minor coal baron) has apparently left the rest of Biden’s climate agenda alone. In fact, as the White House cut its initial bill in half, it barely reduced the size of its climate provisions. The fact that Biden gave decarbonization such priority is a testament to the climate movement’s success. And it could very well prove transformational. Barack Obama’s 2009 stimulus put $90 billion into clean energy and catalyzed a steep drop in the price of renewables. Biden’s investment is nearly six times as large. It’s impossible to know what the return on that investment will be. And given the stakes of minimizing global warming, $555 billion over a decade is an irresponsibly small investment. Nevertheless, it will greatly increase America’s odds of keeping its pledges on decarbonization, and developing technology that makes it easier for the Global South to industrialize sustainably.
Expand access to affordable health insurance. The bill would reduce insurance premiums for 9 million Americans through a (temporary) expansion of Affordable Care Act subsidies, and extend premium-free health insurance to low-income Americans in states that haven’t expanded Medicaid (through a complex tax-credit scheme).
Do a bunch of other good stuff (in temporary and imperfect ways). One the bill’s big-ticket items is a system of subsidized child care that presents some real hazards, but would nevertheless reduce the cost of care for working-class families, while increasing the wages of child-care workers. The legislation would also increase federal funding for affordable housing, at-home care for the elderly, college scholarships, and free school meals, among other good things.
Make the tax code slightly fairer. The framework would not raise the corporate tax rate, but it would make it harder for large, profitable firms to nullify their obligations to Uncle Sam through tax credits and creative accounting. Under Biden’s proposal, companies with over $1 billion in profits will need to pay a minimum 15 percent tax on the profits they report to their shareholders. Firms would also face a one percent surcharge any time they bought back their own shares. The framework would also establish a 15 percent tax on the foreign profits of U.S. companies.
Finally, it would impose a surtax of 5 percent on annual income above $10 million and an additional 3 percent surtax on income above $25 million.
All of these reforms come on top of the $1.9 trillion American Rescue Plan, which (1) dramatically accelerated America’s economic recovery, (2) helped to make the COVID recession the first in history that hit high-income households harder than low-income ones, and (3) facilitated an upsurge in labor militancy by enabling workers to build up savings while unemployed.
Taken together — including a few hundred billion dollars of public investment in domestic infrastructure and manufacturing across Biden’s bipartisan bills — and you have a pretty solid haul for a Democratic trifecta that barely exists.
But even when considered in the context of the Democrats’ narrow majorities, two aspects of the Build Back Better framework are dismaying:
Democrats aren’t soaking the rich, just lightly splashing them. In 2012, the Republican platform called for America to adopt a 25 percent top corporate tax rate. Nine years later, the Romney-Ryan ticket’s position on corporate taxation has proven too left-wing for Kyrsten Sinema and, thus, for inclusion in Build Back Better.
In fact, Biden’s bill leaves the bulk of the Trump tax cuts in place, while also preserving a long list of notorious tax breaks for the wealthy. The president’s initial push for a massive increase in the capital gains tax rate has been abandoned entirely. The carried interest loophole — which enables hedge-fund managers and private-equity executives to pay a lower rate on their (de facto) labor income than many schoolteachers — remains unclosed. Biden had tried to end “stepped-up basis,” a law that allows Americans who inherit unrealized capital gains to cash them out without paying a cent in taxes. To appease congressional Democrats who alleged that this policy would harm humble family farms, the White House’s proposal actually allowed heirs to retain immunity from taxation on their first $1 million of inherited assets. That still wasn’t good enough.
Even the president’s plans for vigorously enforcing existing tax law inspired significant intraparty opposition. To help the IRS catch tax cheats, the White House proposed requiring banks to inform the tax agency of any depositors who move $10,000 into or out of their accounts in a single year. Manchin objected, and the administration countered with a proposal that would establish this rule only for the accounts of Americans who earn more than $400,000 a year (because middle-class Americans should be allowed to cheat on their taxes?).
Thursday’s framework doesn’t include a lifting of the cap on the state and local income tax deduction, a top demand from House Democrats who represent affluent, blue-state constituencies. But the Democratic leadership says that an expansion of that deduction will be a part of the final legislation. So Biden’s bill could very well lower the tax burdens of some Americans in the top 2 percent of the income distribution.
This is a really poor showing. And while Sinema single-handedly vetoed many potential tax increases, Biden’s proposed capital gains tax and end to stepped-up basis attracted opposition from a sizable minority of congressional Democrats. We already knew that the party was unwilling to enact broad-based tax increases on middle-class households, a taboo that effectively prohibits the U.S. from constructing a Western European–style welfare state. Now, it seems that even taxing single-digit millionaires is a dicey proposition. The Overton window on corporation taxation has shifted so far right that Marco Rubio’s position in 2016 is to the left of the 2021 Democratic consensus.
It is possible that the Democrats’ timidity on taxation reflects today’s relative lack of fiscal constraints. Inflation still looks transitory. Interest rates on U.S. debt are still low, and the dollar’s position as the world’s reserve currency looks secure. In this context, Democrats don’t need to choose between aggressively taxing the wealthy and enacting incremental expansions of the welfare state. Perhaps, if constraints were more binding, the party’s commitment to expanding social welfare would persist, while its deference toward multimillionaire heirs would end.
The bulk of Biden’s legacy is set to self-destruct. Ultimately, the Democrats’ social welfare bill is still trying to do too many things. The party cut paid leave from the legislation Wednesday evening. But, as noted above, it retained child care, housing, health care, the child allowance, elder care, and pre-K, among many other programs. In isolation, all of these initiatives are better than nothing. But in the context of a bill with a fixed top-line cost, less would be more.
Just about every policy in the $1.75 trillion framework is set to expire between now and 2028. And most of the big-ticket items are only partially funded at the federal level; Uncle Sam picks up the tab for pre-K for three years, then states are required to kick in 40 percent. Child care also becomes a 90-to-10 state-federal split after year three. Further, the program includes a soft work requirement and an asset test. These phaseouts, state partnerships, and eligibility restrictions enable Democrats to do something on a wide range of the party’s objectives without exceeding moderates’ tolerance for new spending. But this maximalism comes at the expense of the Biden agenda’s quality and durability.
As the Medicaid expansion made clear, red states can’t be trusted to expand social welfare just because the federal government offers them a great deal on the proposition. Penny-pinching on the child-care program, meanwhile, has led Democrats to withhold subsidies from middle-class families during the program’s first years of implementation. In practice, this could increase the cost of child care for affluent households ahead of the 2022 midterm election, an outcome that seems neither substantively nor politically ideal.
Most critically, the ubiquitous phaseouts could allow a future Republican government to nullify most of Biden’s legacy without lifting a finger. The political rationale for doing a bunch of programs temporarily is straightforward: Once welfare programs are established, they are famously difficult to repeal.
If this rationale is coherent, though, it’s also misguided. Part of what makes social welfare programs so sticky in the United States is the difficulty of passing any legislation through our veto-point-laden legislative system. If repealing the expanded CTC and Affordable Care Act subsidies in 2025 requires Republicans to move a bill through both chambers of Congress, those reforms will be (relatively) secure. The millions of Americans who benefit from the CTC and ACA will have ample time to mobilize on their behalf, and the status quo bias of the median voter will make marginal GOP lawmakers uneasy about casting an unpopular vote. By contrast, if Republicans merely need to do nothing in order to shrink the social welfare state, there is little reason to assume they won’t be up to that challenge. To the contrary, even if Biden’s programs become popular in their first years of existence (a hypothetical made less likely by the programs’ corner-cutting designs), GOP lawmakers could still find it politically untenable to actively support extending the legacy of the man who “stole” the 2020 election. And these considerations of the GOP’s likely conduct are no trifling matter. After all, the reason Democrats have such slim congressional majorities, despite winning the popular vote by hefty margins in the last two federal elections, is that the party faces massive structural disadvantages in the House and Senate. It is highly likely that Republicans will control at least one house of Congress from 2023 until the end of this decade. Democrats should legislate with that reality in mind. $1.75 trillion is enough to make a big investment in climate and establish two or three fully funded, permanent social programs. It’s malpractice for the party to enact a dozen temporary, underfunded ones instead.
Finally, the framework scraps Biden’s proposal for empowering Medicare to negotiate prescription drug prices. This is dreadful on the merits and “ugly” on the optics. Democrats have been promising to impose price controls on seniors’ pharmaceuticals since 2006. And it’s probably been the party’s single-most-popular policy proposal for the past 15 years. It also generates a large amount of revenue, which Democrats could have used to finance more generous and/or permanent social programs.
And yet it is not in Biden’s outline. What’s worse, Democrats can’t even blame Manchin and Sinema for that fact. Nearly a dozen House Democrats expressed opposition to the plan, as did New Jersey senator Bob Menendez. The policy’s omission constitutes an exorbitant gift to one of America’s most loathed industries, and a betrayal of one of the nation’s most reliable voting blocs.