Budget gimmicks put spending deals at risk
WASHINGTON — Senators fashioning a pair of colossal bills that would deliver more than $4 trillion for infrastructure, health care, environment and other initiatives insist they will fully pay for both plans. Will they?
In a Washington ritual as reliable as panic-buying when light snow is forecast, both parties have long relied on toothless budget gimmicks to help finance their priorities. The contrivances let lawmakers claim they are being fiscally responsible while inflicting little pain on voters and contributors with tax increases or spending cuts.
Here’s how they may do it again:
The price tag
For political and procedural reasons, Congress’ Democratic leaders are slicing President Joe Biden’s domestic spending agenda into two bills. One is a bipartisan effort providing about $1 trillion for roads, broadband and other public works projects. Bargainers hope to clinch a final deal and unveil it this week.
The other bill would aim $3.5 trillion at expanding Medicare coverage, slowing climate change and providing free prekindergarten and community college. This expansive package, which would also fatten tax credits for children and health care and help immigrants become citizens, is a Democrats-only push expected to take months and draw unanimous Republican opposition.
With Washington already projected to spend $63 trillion over the coming decade, an additional $4 trillion
would be just a 6% boost. Even so, finding $4 trillion in tax increases or spending cuts to pay its costs would be prohibitively painful for politicians.
Getting real
Some of the savings proposals are legitimate.
To pay for much of the $3.5 trillion package, Democrats led by Senate Finance Committee Chairman Ron Wyden, D-Ore., want to increase taxes on the wealthy, big corporations and companies earning income abroad.
Raising more would be tough. Lawmakers are boxed in between Mr. Biden’s pledge to not raise taxes on people earning less than $400,000 annually and GOP opposition to unraveling President Donald Trump’s big 2017 tax cut. “It’s the perfect storm for not doing anything real on the revenue side,” said William Hoagland, a former top Republican Senate aide.
Also real are proposals to beef up the Internal Revenue Service budget so it can collect more unpaid taxes and, perhaps, to claim the bills themselves would generate more government revenue by stimulating economic activity. But either could go too far.
Picking the umpires
No one doubts that a more muscular IRS would pry more taxes out of scofflaws. Bolstering programs that help people stay
healthy, get educated and move goods more efficiently undoubtedly help the economy hum.
The question, though, is exactly how much federal revenue those two ideas would yield. Government agencies and outside analysts have widely divergent views, especially for forecasting legislation’s impact on economic growth.
Lawmakers eager to claim they have fully financed their proposals could gravitate to the highest plausible numbers they can find, to critics’ chagrin.
Dueling IRS numbers
The Congressional Budget Office, lawmakers’ nonpartisan accountant, estimated last year that Congress could collect $61 billion more in taxes over the next decade by giving the IRS an additional $20 billion.
Others are more generous, which could help Democrats eager to finance their $3.5 trillion proposal.
The Penn Wharton Budget Model, a nonpartisan research group, projected that
Mr. Biden’s proposed $79 billion boost for the IRS would produce $480 billion more revenue. The Treasury Department pegged the revenue increase under Mr. Biden’s plan at $779 billion.
Old, unreliable friend
Documents show the bipartisan infrastructure proposal and Democrats’ separate $3.5 trillion measure may both claim savings from long-term economic growth the bills would supposedly spur.
That concept is called dynamic scoring, and Republicans have long embraced it to paint their tax cuts as cost-free. That’s not happened.
“The tax cuts will pay for themselves,” Steven Mnuchin, Mr. Trump’s Treasury secretary, said repeatedly about the 2017 tax law. Instead, The CBO estimated that even including increased economic activity, that measure will drive up federal deficits by $1.9 trillion over a decade.
Democrats have long mocked dynamic scoring as a Republican ruse for claiming savings that may never materialize to hide the true cost of their tax-cutting agenda. Among its most virulent critics has been Senate Budget Committee Chairman Bernie Sanders, I-Vt., who in 2015 called it “voodoo economics.” His office declined comment.
Yet Democrats argue that if tax cuts can spawn economic growth, so can fortifying productive programs such as education and transportation. That’s legitimate if you don’t put “so much spin on the ball that you’re basically closing a budget gap with magical thinking,” said Sen. Brian Schatz, D-Hawaii.
Citing past GOP support for dynamic scoring, Sen. Roy Blunt, R-Mo., said, “Maybe on this topic I would just say, ‘Welcome to the team.’”
The CBO has provided some dynamic scoring estimates but cautioned that projections are uncertain.
A ghost regulation
Both bills’ negotiators are ready to claim savings by assuming Mr. Biden will repeal Trump administration regulations on drug rebates. The CBO projected those rules would cost the government $177 billion over a decade, so blocking them would reduce expected spending.
But Mr. Trump’s rule has never been implemented. With Washington running record-setting budget deficits annually, claiming savings by repealing the rule and using that money to finance spending bills would be like a deeply indebted family canceling a $50,000 vacation and using those “savings” to buy something else.