Despite a pending government shutdown and looming debt default, this week federal lawmakers in Washington were hyper-focused on the House reconciliation legislation, the second installment of President Biden’s Build Back Better agenda.
Although the legislation is far from finished, initial budgetary contours emerged this week as the 13 House committees reported out their reconciliation recommendations, chief among them the House Ways and Means Committee work product.
The complete fiscal picture of the Ways and Means title is not yet known (the Congressional Budget Office has not yet provided a score) but the nonpartisan Joint Committee on Taxation (JCT) provided its initial assessment of the revenue provisions contained in the Chairman’s mark. Topline? Ways and Means Democrats endorsed nearly $2.1 trillion in permanent tax increases and approximately $1.2 trillion in permanent and temporary tax cuts.
At first blush, this arithmetic seems somewhat fiscally responsible—a net deficit reduction of approximately $870 billion—but there are two dirty little secrets hidden behind these figures. First, the Ways and Means provisions are meant to offset the bulk of the spending increases in other sections of the House reconciliation bill—the work products of the 12 remaining committee chairmen who do not have jurisdiction over many revenue-generating options. CBO has not yet scored those titles, but the FY 2022 budget resolution allows those committees to spend up to $1.9 trillion.
Second, as noted above, some of the tax cuts in the Ways and Means section are temporary and the JCT cost estimate reflects this. The expanded and enhanced Child Tax Credit, a cornerstone of President Biden’s child anti-poverty agenda, is extended only to the end of calendar year 2025 (at a cost of $556 billion) where it is allowed to expire. Most of the “green” energy tax provisions sunset at the end of CY 2031, the last year in the budget window. A tax credit for caregiver expenses and certain business tax credits also are allowed to expire mid-way through the budget window. But is there any doubt that a future Congress would be pressured to extend or make these tax cuts permanent? The temporary nature of these tax provisions in the reconciliation bill intentionally obscures the real cost of those policies. For example, JCT estimates that the Child Tax Credit would cost $133 billion in 2025 which, if made permanent, implies a total 10-year cost of nearly $1.3 trillion . Suddenly, this title doesn’t seem so fiscally prudent.
Aside from these budgetary sleights of hand, however, the most egregious sin is the complete failure to recognize—and pay for—the deficits in existing entitlement programs. Recent reports from the Social Security and Medicare Boards of Trustees reveal large and growing shortfalls between the programs’ benefit costs and the dedicated revenues designed to support them. It makes zero sense to raise trillions in new revenue only to fund (partially) new tax cuts/tax expenditures and new social programs. What about lawmakers’ responsibility to address pre-existing deficiencies?
In 2017, Democrats rightly railed against the Republicans $1.7 trillion tax cut as a Trojan horse for future entitlement cuts. But the current reconciliation bill doubles down on that pony by using low hanging fruit—tax increases on the wealthy—to fund new and expanded social programs rather than shore up essential programs like Social Security and Medicare. When those programs reach DEFCON 1 in a few short years, only politically painful choices will remain.
There is still time to course-correct. Changes can and will be made in the House Rules Committee before the Build Back Better reconciliation bill is considered on the House floor. And Senate Democrats are likely to impose additional modifications when it’s their turn. Democrats should scale back their proposed new and expanded social programs and instead bank any new revenue for debt reduction, which will better prepare the federal balance sheet for the day of reckoning we all know is coming.