To prevent their agenda from stalling, President Biden and congressional Democrats must secure two major policy victories before recessing for the upcoming month-long district work period: (1) complete negotiations on a nearly $1 trillion bipartisan infrastructure bill and pass it out of the Senate, and (2) reach agreement on a $3.5 trillion FY 2022 budget resolution, which will pave the way for the President’s jobs and “human infrastructure” agenda. Recent blogs and issue briefs from The Concord Coalition examined aspects of the traditional infrastructure bill. Today’s entry turns an eye to the FY 2022 budget resolution.
Democrats in the House and Senate released the framework of their budget resolution in mid-July (see text box at bottom). It encompasses many of President Biden’s FY2022 budget proposals, including universal pre-K for 3 and 4 year-olds, two years of free community college, paid family and medical leave, investments in clean energy, and extensions of the expanded child anti-poverty tax credits enacted earlier this year.
While it is possible that President Biden’s traditional infrastructure agenda (increased investment in roads, bridges, airports, mass transit and waterways) might still be enacted with bipartisan support to avoid a Republican filibuster, it has been clear from the beginning that his more ambitious “human infrastructure” proposals would be advanceable only under the Senate’s “reconciliation” process.
Reconciliation allows the Senate to operate like the House in that reconciliation bills can pass the Senate with a simple majority and bypass the normal 60-vote filibuster - as long as certain rules and restrictions are obeyed. Adopting an FY 2022 budget resolution is an essential first step for Democrats because it is the only way to initiate the reconciliation process. No budget resolution = no reconciliation bill.
The original purpose of reconciliation was to allow quick passage of legislation that would reduce annual budget deficits and help keep the federal debt in check. In recent years however, both political parties have used it to enact legislation that increased deficits and debt, either by enacting major tax cuts (in 2001, 2003, and 2017) or new spending programs (2012, 2021).
Reconciliation comes with a strict set of guardrails, including a rule that prohibits the inclusion of matter that would increase the budget deficit beyond the budget window. To avoid running afoul of this rule, bill drafters often rely on budget gimmicks – like sunsetting tax cuts and/or new spending programs -- as a way to hide the true cost of these measures.
For example, a broad-based tax cut will usually increase the deficit in the outyears, a violation of reconciliation rules. To remain compliant, lawmakers might include an expiration date in the last year of the budget window, effectively sunsetting the tax benefit. Policymakers have no intention of actually letting the tax cuts expire, but the sunset provision is a necessary concession. It allows the Senate majority to enact their agenda with a simple majority without having to worry about the budgetary consequences of making the policy permanent. It’s akin to the adage, “have your cake and eat it too.”
This tactic isn’t new. The Bush tax cuts of 2001 were enacted via reconciliation and to avoid running afoul of budget rules, Republican bill drafters intentionally wrote the tax cuts to expire in 2010 (the last year of the budget window), betting that the cuts would be so popular by then that their future 2010 colleagues would have no choice but to extend them no matter who was in the majority or occupying the White House … and for the most part their gamble paid off. With the tax cuts set to expire in 2010, lawmakers briefly extended them twice before President Obama made them permanent in 2012 (with the exception of the top marginal tax rate which was allowed to revert to its pre-2001 level). The result was a significant increase in annual budget deficits and the national debt – both inside the original budget window and beyond.
Democrats did something similar when they created Obamacare with the help of reconciliation in 2010. To offset the costs of the premium tax credits used to purchase insurance on the health care exchanges, Democrats included an unpopular payfor—a 40% surtax on high-value health care plans known as the “Cadillac tax,” but Obamacare delayed the effective date of the surtax for 8 years. As the implementation date drew near, lawmakers enacted various bills to further delay the tax until it was permanently repealed. In the end, the unpopular payfor was never enacted, the savings it was designed to produce never materialized, and as a result, budget deficits were larger both inside the original budget window and beyond.
In each case -- the 2001 tax cuts and the 2010 Obamacare bills -- the cost estimate was grossly misleading. Not because the scorekeepers got it wrong, but because the artificial sunsets and delayed offsets hid the true cost of the underlying proposals. And unfortunately it appears that Democrats are contemplating a repeat of this playbook in their FY 2022 budget framework.
House and Senate Democrats have proposed a long list of expensive policy changes that are popular with voters ($3.5 trillion). To avoid running afoul of rules that constrain the use of reconciliation, Democrats identified three general “buckets” of payfors that will probably prove equally as unpopular as the Cadillac tax or unworkable all together:
If these payfors fail to produce the offsets needed under the rules of reconciliation, then Democrats will probably resort to artificial sunsets to control costs in their bill. In their budget framework document, Congressional Democrats openly admit that this budget chicanery is anticipated in their legislation. Each section of their framework proposing additional tax cuts or new spending includes the phrase, “The duration of each credit’s enactment will be determined based on scoring and Committee input.” Translation? ”If this provision costs too much to make permanent, we’re going to sunset it and dare a future Congress to let it expire.”
Prior to COVID, federal deficits and debt were already projected to reach unsustainable levels. Although the budgetary effects of COVID will wane, the persistent imbalance between revenue growth and entitlement spending that predated the pandemic will remain – and grow larger. Hiding the true cost of legislation, even hugely popular legislation, with budget gimmicks like artificial sunsets and delayed offsets merely exacerbate an already bleak fiscal future. It’s time for both parties to restore reconciliation to its intended purpose: expedited enactment of measures that would reduce – not increase – deficits and debt. This means rejecting the use of budget gimmicks that hide the true cost of legislation.