A bill’s net cost refers to the price if you add up all the provisions that raise money, subtract all the provisions that lose money and then see how it all washes out. For the 2017 tax bill, the net result was forecast as a $1.5 trillion increase in deficits over a decade. (This was later revised upward, to nearly $2 trillion.)
If, however, we had counted only the law’s gross costs (i.e., without offsetting revenue-raisers, such as the cap on state and local tax deductions), its price tag would have looked multiple times more expensive.
But that’s exactly how most politicians and journalists are tallying the “cost” of Democrats’ safety-net-and-climate legislation.
As Republicans did in 2017, Democrats are trying to pass their legislation through “reconciliation,” a process that requires only a party-line vote. Most references to the Democrats’ package describe it as costing $3.5 trillion.
That number reflects the gross costs of Democrats’ agenda items, such as paid leave, health-care expansions, universal pre-K and child tax credits.
In other words, the $3.5 trillion headline refers to only one side of the ledger. However, Democrats plan to pay for at least some of these priorities with various offsets, such as higher taxes on corporations and the wealthy. Once you include the offsets, the net cost will be lower.
We know the maximum possible net cost, though. When a bill goes through reconciliation, lawmakers must commit in advance to a ceiling on how much the bill can raise deficits.
Last month, lawmakers agreed to a maximum deficit increase of about $1.75 trillion over a decade. They could ultimately choose a smaller number. The White House says it’s aiming for a fully paid-for bill — i.e., with a net cost of zero — though that outcome seems unlikely.
The $1.75 trillion maximum net cost has gotten almost no attention, while the $3.5 trillion gross figure dominates news coverage. This has irked White House officials, one of whom complained to me that “ ‘$3.5 trillion’ is disconnected from any kind of meaningful measure of what this developing legislation is,” since it doesn’t reflect the bill’s deficit impact or even the total size of its spending items. (The proposal cuts some taxes, too.)
And the framing matters because it has been distorting congressional negotiations.
Sen. Joe Manchin III (D-W.Va.) reportedly has drawn a red line for the bill’s “size” at no more than $1.5 trillion. If he were focusing on a net cost of up to $1.5 trillion, Democrats could cram a lot of priorities in the bill, so long as they also include substantial pay-fors. But Manchin has apparently anchored his demands around the bill’s gross costs. That severely constrains what programs Democrats can create or expand, no matter how enormous the offsets are.
How come Republicans got to use bookkeeping that made their legislation seem less costly, while Democrats are saddled with metrics that overstate their fiscal profligacy?
It’s probably not some grand conservative scheme, foisted upon unwilling progressives.
Rather, it makes intuitive sense to think about tax changes in net terms, because so many tax provisions interact with each another. Plus, different isolated provisions of the 2017 law helped and hurt the same people or groups. (For example, it eliminated personal exemptions while raising the standard deduction.)
You probably wouldn’t say: Part A of the law reduced my taxes by $300; Part B raised them by $100. You’d say: My total tax bill went down by $200. The same makes sense when evaluating the overall tax law.
So progressive leaders don’t guide the debate away from that $3.5 trillion gross figure, and reorient discussions toward (smaller) net costs, as White House officials might prefer; after Manchin’s downsizing demands, Sen. Bernie Sanders (I-Vt.) declared that $3.5 trillion is “the very least” the plan should cost.
It’s the accounting version of Democrats’ ongoing tug-of-war: Some members want to spin the numbers to appeal to progressives; some want to spin them to appeal to moderates. At some point, Democrats have to choose which set of books they want to present to the public.