On Friday, the House of Representatives passed their mammoth “Build Back Better” reconciliation bill, which is so dependent on creative accounting that even Enron’s accountants would have blushed. Back on November 1, Senator Joe Manchin warned that the proposal relied on “shell games” and “gimmicks.” Boy, was he right.
Rather than heed Manchin’s warning, it seems like Speaker Nancy Pelosi took that warning as a challenge to stretch the rules of logic even further. If Senator Manchin is serious about passing a bill that is paid for, he should block the bill, and conservatives should point out these tricks so voters realize this bill breaks President Joe Biden’s pledge that his agenda won’t “cost a dime.”
The nonpartisan Congressional Budget Office found the bill as written would cost $367 billion over a decade, but its true cost is substantially more because Democrats are using permanent tax increases to finance temporary spending programs. What Democrats are doing is analogous to someone having a $24,000 budget for rent who instead of renting a place for $2,000 a month, splurges for the $3,000 place, runs out of money after 8 months, and ends up homeless for the holidays.
For instance, the bill will spend $253 billion in 2025 but just $88 billion in 2031 because it would phase out programs like universal pre-K, which would cost $27 billion in 2027 but nothing in 2031. In reality, Democrats are betting once they create a new program, future Congresses will be compelled to extend them. We can already imagine the mainstream media headlines that allowing a temporary program to expire amounts to a “heartless budget cut” by mean-spirited Republicans. I mean, when has a temporary government program actually ended? These should be assumed permanent until proven otherwise.
Perhaps most egregiously, Democrats extend the enlarged child tax credit for just one year in their bill—if it is extended each subsequent year, the cost of the bill would rise by $1.03 trillion. If future Congresses extend all the temporary programs, in just 2031, the deficit could be increased by about $300 billion vs the illusory reported deficit reduction of $162 billion. These policies could add $2.2-$2.7 trillion to the deficit over a decade—seven times more than the CBO estimate due to these “phase-outs.”
If Democrats really think these programs are so great, they should admit the true cost rather than trying to obfuscate it behind budgetary smoke and mirrors. Or if Senators like Manchin recognize that further large-scale deficit spending is unwise due to elevated inflation, they should say no and stop this bill in its track.
And to be clear, while we can debate how much of the current inflation is transitory, this bill is inflationary over the short term. It adds $150+ billion to the deficit each of the next four years, putting more money into the economy and pushing up aggregate demand. At the same time, one of the bill’s main 'pay-fors' is higher taxes on corporations. Given strong demand, companies have significant pricing power, and rather than pay higher taxes out of existing profits, they will raise the prices that you and I pay to cover this increase in their cost structure. Amazon won’t really pay more; their customers will pay their higher bills for them.
Raising aggregate demand while increasing the cost of aggregate supply is a recipe to keep inflation higher than it otherwise would be. That is the last thing that our economy needs. If this bill passes and high inflation taxes Americans next year, Biden and congressional Democrats would “own” it and deserve to be roundly punished in the midterms.
Amazingly over the next four years, Democrats spend over $200 billion increasing the State and Local Tax credit deduction—with the vast majority of that money benefiting those who make over $250k. Democrats said they wanted to raise taxes on the rich; instead, many in blue states will be getting a cut in the next couple of years under this bill. The rich get a tax cut, and you got higher gas prices. In reality, this bill subsidizes inefficiencies and excesses of state and local governments. If high tax states provided better services to their residents than low-tax ones, residents wouldn’t be moving out. Instead, many have worse infrastructure and schools. That’s why thousands, like me, have left states like New York for Florida and elsewhere.
This bill is an assault on logic and honesty; in practice it will cost over $3.5 trillion and add $2 trillion to the debt, transforming America’s social safety net while adding to the inflationary impulse the next few years. For the sake of the country, it cannot pass; moderates like Manchin and Senator Kyrsten Sinema must oppose this bill and demand an honest accounting of these programs to restore fiscal sanity.