Joe Biden’s signature climate and social policy bill passed the House Friday morning. Now, the $1.85 trillion legislation heads to the Senate, where it will need to overcome (among other things) Joe Manchin’s aversion to deficit-financed welfare spending.
On one level, the Congressional Budget Office’s official score of the Build Back Better Act should make that task easier. According to Congress’s nonpartisan scorekeeper, the legislation spends only $160 billion more than it generates in new tax revenue over the next ten years. In other words, it would increase America’s average annual deficit by about $16 billion.
That is a nigh-negligible sum. It is equal to about 0.57 percent of the annual federal budget. Congress is presently trying to increase the Pentagon’s annual budget by $24 billion and has felt no compulsion to offset that spending increase with new tax revenue. If America can afford to deficit finance a $24 billion increase in defense spending, it can afford to deficit finance a $16 billion increase in social welfare and climate spending.
But there is little reason to believe that the Build Back Better Act, as written, would increase the deficit at all. In its score, the CBO assumed that the legislation’s investment in IRS enforcement would yield $207 billion in new revenue as the expanded agency clawed back more dollars from tax cheats. Yet the Treasury Department had previously estimated that the same provisions would generate $400 billion in recaptured tax revenue. And academic economists who’ve studied the issue think that even the Treasury estimate is a bit pessimistic.
At present, the IRS is on pace to collect $7 trillion less than Uncle Sam is owed over the next decade. That gargantuan tax gap is partly a product of the GOP’s success in gutting IRS enforcement. Over the past decade, the audit rate for millionaire taxpayers has fallen by more than 60 percent, while that of large corporations has fallen by half. In both instances, the amount of revenue generated by audits has fallen by nearly the same percentage as the audit rate. Which is to say, IRS audits of millionaires and corporations now bring in between 50 and 60 percent less revenue annually than they did ten years ago. If this relationship between audit rates and audit revenues holds when IRS enforcement is scaled back up, then Build Back Better will generate far more revenue than the CBO suggests.
And yet, if the CBO’s score is misleadingly uncharitable from one angle, it is misleadingly generous from another.
To achieve deficit neutrality — without exhausting moderate Democrats’ tolerance for tax increases or narrowing its agenda — Nancy Pelosi’s caucus has set the bulk of Biden’s welfare agenda to self-destruct before the decade’s end. Funding for both subsidized child care and universal prekindergarten falls to $0 in 2028. The enhanced child tax credit expires by 2023. The bill provides subsidized insurance to low-income Americans in states that refused to expand Medicaid until 2026. It provides subsidies to middle-class families looking to purchase health insurance on the individual market (and who were previously too affluent to qualify for Obamacare) — but only for four years. The bill also lifts the cap on the state-and-local tax deduction for five years and then reinstates it.
Democrats have not sold these programs as temporary measures. To the contrary, they have touted the social programs as historic expansions of the American welfare state, policy breakthroughs that will durably remake Americans’ relationship with their government. Meanwhile, proponents of lifting the SALT cap haven’t argued that millionaire homeowners in blue states deserve temporary tax relief in light of their pandemic-era hardships; they’ve argued that the SALT cap is unjust discrimination against the “New Jersey gated community” community.
The bill’s SALT provisions have only lukewarm support from leadership, and it is unclear whether they will make it into the final legislation. But the party has explicitly stated that it does not expect Build Back Better’s temporary programs to remain temporary. Rather, Democrats are betting that once these policies are put in place, their beneficiaries will guard them jealously, in much the same way that Medicare and Social Security recipients have successfully prevented Republicans from slashing entitlement spending.
If Democrats are right about that — which is to say, if Build Back Better effectively creates permanent prekindergarten, child-care, child-allowance, and health-care programs — then the legislation will increase the deficit substantially over the next ten years, even if one accepts a high-end estimate for the revenue generated by heightened tax enforcement.
From my perspective, that isn’t a problem. It is more important to cut child poverty, expand early childhood education, and guarantee low-income families health insurance than it is to avoid marginally increasing the amount of money the U.S. government will owe to our grandchildren. Further, there’s a strong case for deficit financing Build Back Better’s investments in green technology, given their indispensability to long-term growth.
But my perspective is less relevant here than Joe Manchin’s. And the West Virginia senator has said both that (1) he wants Build Back Better to be deficit neutral and (2) he believes that the Democratic leadership is correct — temporary social programs inevitably become permanent ones. As Manchin told Politico in September:
In the West Virginia senator’s view, starting new programs that shut off a few years from now is akin to making them permanent; Congress will never be able to shut them off … “Once you start doing something, it becomes ingrained in it. We want to do it and do it right and finance it,” Manchin said.
So, unless Manchin’s views have changed, the House version of Build Back Better is not “fully paid for,” in his understanding of that phrase.
Unfortunately, I think both Manchin and the Democratic leadership are likely wrong. At least some of the bill’s temporary programs are likely to remain temporary.
A major reason why social welfare programs have been so sticky in the United States is that it is difficult to pass any bills through our veto-point-laden legislative system. If ending federal funding for child care and the enhanced child tax credit required a future Republican government to move a repeal bill through both chambers of Congress, then that funding would be (relatively) secure. The millions of Americans who benefit from the programs would have ample time to mobilize on their behalf, and the status quo bias of the median voter would 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 that 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. In recent polls, the Republican Party boasts its largest advantage in the congressional generic ballot on record. And the GOP is already poised to regain the House on the strength of gerrymandering alone. Democrats face massive structural disadvantages in the House, Senate, and Electoral College. The odds that the GOP will boast full control of the federal government when Build Back Better’s temporary programs come up for renewal are not negligible. The odds that Republicans will control at least one chamber of Congress in 2026 are high.
Democrats should be legislating with these grim realities in mind. The Build Back Better Act is a laudable piece of legislation that will make millions of Americans’ lives better in ways large and small. Yet all of its most ambitious social reforms are either badly compromised by cost-saving measures or at risk of near-term expiration.
Rather than trying to shove $4 trillion worth of new programs into a $1.85 trillion hole, Democrats should prioritize a small number of major reforms and fund them permanently. The party has an opportunity to secure lasting reductions in child poverty and expansions of the U.S. welfare state. Forfeiting that opportunity for the sake of avoiding setting priorities — and thus intra-coalitional tension — is not fiscally responsible.