This week on Facing the Future, we explored the potential economic effects of President Biden’s Build Back Better Framework, as released by the White House on October 28th, 2021, and the cost of making its temporary provisions permanent. Our guest was Kent Smetters, Faculty Director of the Penn Wharton Budget Model. Concord Coalition Policy Director Tori Gorman joined me for the conversation with Dr. Smetters.
In our last segment, we looked at the economic feedback of federal spending on infrastructure, a subject that is front and center with final passage last week of the bipartisan infrastructure bill. Steve Robinson, Concord’s chief economist, joined Tori and me for the infrastructure discussion.
Of the two big bills making up President Biden’s economic agenda, it’s one down and one to go. The physical infrastructure bill, which received bipartisan support, has now passed both the House and Senate and is on its way to the president’s desk for his signature. The other bill (Build Back Better Act, or BBBA), a much bigger package of social spending and climate change provisions, awaits House debate next week before moving on to the Senate where changes are expected to be made. In other words, we still have a long way to go on that one.
Smetters detailed the Penn Wharton analysis of the original Biden Build Back Better Framework. According to their estimates of the framework, as written in October, it would increase spending by $1.87 trillion over 10 years and increase revenues by $1.56 trillion over the same time. By 2050, Smetter explained, the framework would increase federal debt by 2 percent above the current CBO baseline and decrease GDP by 0.1 percent relative to current law.
Because many of the framework’s new spending provisions expire in a few years, Penn Wharton produced an alternative illustrative scenario in which most provisions are assumed to be permanent with the exception of clean energy tax credits, which still expire after 10 years. In that scenario, Smetters said, new spending would increase by $4.2 trillion above current law over 10 years while new revenues would remain at $1.56 trillion. As a result, federal debt would increase by 25.2 percent in 2050 and GDP would decrease by 2.8 percent in 2050 relative to current law.
Smetters used the Child Tax Credit as an example. “As written,” he said, “the Child Tax Credit would cost about $95 billion over 10 years because it’s mainly an extension for one year. If you extended it over 10 years, though, the Child Tax Credit alone would cost about $1.8 trillion. This was the subject of Gorman’s blog last week, The Fiscal Cliff No One is Talking About.
Subsequent to our conversation with Smetters, Penn Wharton updated the budgetary effects of the framework to reflect changes made by the House in the BBBA. The update estimates that new spending under the BBBA would increase by $1.9 trillion over 10 years while revenues would increase by $1.8 trillion.
In our infrastructure segment, Robinson explained why he concluded in an issue brief published earlier this year that infrastructure spending, even if it’s a good thing to do, does not pay for itself. “If you build infrastructure, it’s not a one-time investment,” Robinson said. “You can’t just build a road and go away. The road has to be maintained and repaired. There is an ongoing cost, what’s referred to as ‘economic depreciation’…and that offsets some of the benefits. So there are costs and benefits of doing this and essentially my conclusion was that there is no plausible way to assume that infrastructure will actually pay for itself.”
Looking ahead to the fate of the BBBA, Gorman said she expects that it will pass the House but that changes should be expected once it goes to the Senate. The bill would then have to go back to the House. “I don’t think this is the last time the House will see the Build Back Better reconciliation bill,” she said.
Hear more on Facing the Future. I host the program each week on WKXL, NHTalkRadio.com (Concord N.H.), and it is also available via podcast. Join me and my guests as we discuss issues relating to national fiscal policy with budget experts, industry leaders, and elected officials. Past broadcasts are available here. You can subscribe to the podcast on Spotify, Pandora, iTunes, Google Podcasts, Stitcher, or with an RSS feed. Follow Facing the Future on Facebook, and watch videos from past episodes on The Concord Coalition YouTube channel.