“So how do we pay for my jobs and family plan? I made it clear, we can do without increasing the deficit.”
— Biden, remarks during an address to Congress, April 28
The federal budget deficit used to be an all-consuming problem for the denizens of Washington. Biden, after a half-century in politics, would well remember those battles, having been in the middle of many of them.
The budget deficit is less of an issue these days, in part because Republicans passed debt-financed tax cuts that sent the deficit soaring. But Biden appears to believe it is still somewhat important to voters. He has regularly assured Americans that his plans to boost federal spending by more than $4 trillion won’t increase the deficit at all — not even by a “single penny.”
That’s a high bar. So let’s check the president’s math.
Biden mostly plans to pay for his spending proposals with higher taxes on the wealthy — people making more than $400,000 a year — and on corporations. He also plans to bolster tax enforcement and tax audits to crack down on tax avoidance and evasion by companies and the rich.
Biden’s spending proposal, under the rubric of “Build Back Better,” has two parts. The first, the American Jobs Plan, pitches $2.25 trillion of infrastructure spending over 10 years. This would be mostly a one-shot investment in rebuilding roads, promoting green energy and the like. The second part, the $1.8 trillion American Families Plan, consists mostly of transfer payments that would keep going, year after year, such as free prekindergarten programs, free attendance at two-year community colleges and child-care support.
As for revenue, the Jobs Plan contains tax increases valued at $1.75 trillion over 10 years, while the Families Plan claims revenue gains of $1.5 trillion.
First, we should note that these numbers are estimates derived from fact sheets by the White House and Treasury Department or the Biden campaign. They have not been confirmed by the Congressional Budget Office (CBO) or the Joint Committee on Taxation (JCT), which vet spending and revenue estimates of legislation.
For instance, almost half of the revenue for the Families Plan, $700 billion, is supposedly the result of more rigorous tax enforcement. Biden has proposed a lot of money — $80 billion — to bolster the IRS, but the CBO and JCT might conclude the $700 billion estimate is too optimistic. The Penn-Wharton Budget Model, for instance, estimates Biden would raise only $480 billion.
Some experts, such as former IRS commissioner Charles Rossotti, believe Biden is being conservative and that as much as $1.4 trillion could be recovered over a decade. “Our estimate of $1.4 trillion would still only recover 19 percent of the tax gap in that period, so the administration estimate recovers less than 10 percent,” he said.
Biden’s $700 billion estimate “seems eminently credible given the combination of restoring adequate resources to a starved revenue service, as well as proposed new tools to allow it to more efficiently focus its compliance activities,” said Chye-Ching Huang, executive director of the Tax Law Center at the New York University School of Law.
Second, assuming the numbers are correct, anyone with quick math skills will note that Biden is proposing just over $4 trillion of new spending over 10 years and claims only $3.25 trillion in new revenue.
That leaves him almost $1 trillion short — adding to the deficit — over 10 years.
So how does Biden make his claim?
Ten years is the generally accepted period for evaluating a federal budget, but nothing is written in stone. Until the budget wars of the mid-1990s, the federal budget was written in five-year chunks. Then it crept up to seven years and eventually to 10 years.
Biden wants people to look at his budget over a 15-year time period. After 10 years, virtually all of the outlays for infrastructure will have been made, but his tax increases would still be pulling in revenue. Over 15 years, those tax increases would bring in a total of $2.75 trillion.
Meanwhile, the transfer payments in the Families Plan would keep going, but so would that plan’s revenue raisers. (The White House has not publicly revealed the numbers for the Families Plan in years 11 to 15.)
The year-by-year calculations by Moody’s show that annual surpluses would begin in 2029 in the Jobs Plan and 2026 in the Families Plan. But, in the meantime, expenses would exceed revenue in the first part of the decade, boosting the deficit, so interest payments on the debt would increase as well. Mark Zandi, chief economist at Moody’s, told the Fact Checker the additional interest expense would be $310 billion in that 10-year period.
After 15 years, a White House official said, the tax increases would bring in enough revenue that the plan will actually pay off the earlier deficits generated, including interest expenses, and show an overall surplus.
But let’s face it, that’s a long way off — almost as long off as the next emergence of the Brood X cicadas in the Washington area.
“On paper, the plan is largely paid for and does not add meaningfully to the nation’s deficits and debt, at least over a 15-year horizon,” Moody’s concluded. Still, Moody’s expressed concern about whether the plan to end some programs — such as an expanded child tax credit in 2026 — would actually take place and whether better tax enforcement would really yield the money expected by Biden.
But if the plan worked as planned, adding jobs and expanding the economy, then over 15 years it would pay for itself, Zandi said. “After accounting for interest expense and the dynamic benefits of [Build Back Better], the plan is more-or-less paid for after 15 years,” he wrote in an email.
The Committee for a Responsible Federal Budget, a nonpartisan group, has urged Biden to rewrite his plans to be deficit-neutral over 10 years. But the group has praised Biden for identifying ways to pay for his spending proposals. Marc Goldwein, CRFB senior vice president, said Biden was “not wrong” to claim his plan did not add to the deficit over 15 years, assuming the numbers are correct.
But that may be a big assumption.
“Quite frankly, until the administration presents a fiscal year 2022 budget that lays out their year-by-year spending and revenue assumptions, we are all in the dark,” said G. William Hoagland, senior vice president at the Bipartisan Policy Center and a former staff director of the Senate Budget Committee. “I can make my assumptions about how their total spending flows, CRFB can also, and I can make the case that they will add to the deficit.”
Brian Riedl, senior fellow for budget, tax and economics at the Manhattan Institute, said the 15-year budget window was “gimmicky.”
“Neither the American Jobs Plan nor the American Families Plan have been scored by the Congressional Budget Office,” Riedl said. “Thus, the president’s assumption that these programs are paid for is more of a White House talking point than a verified score. In fact, many of these proposals are too vague to even be scored at this point, and the scoring devil will be in the details.”
“President Biden’s approach would fully fund vital investments in our middle class by asking the wealthy and big corporations to pay their fair share,” said David Kamin, deputy director of the White House National Economic Council. “It is fully paid for within the first 15 years and reduces the deficit over the long run.”
The Pinocchio Test
Anyone who owns a home understands that investment in infrastructure — such as a new kitchen or roof — can be financed with borrowed money that is paid off over many years as you enjoy the fruits of your investment. That’s the rationale behind a longer budget window for the Jobs Plan, much of which would be spent in the first eight years and then paid off over the next seven years.
The Families Plan in theory is also an investment — in better education, for instance — but it’s a more traditional spending plan of transfer payments. These keep going, year after year. In any case, the tax increases would be permanent, at least until another president seeks to rewrite the tax code.
If you accept a 15-year budget window, Biden has identified how he plans to pay for his programs so that, over that cicada-like time period, any borrowed money will be paid back, including interest on the debt borrowed earlier in the cycle. But it’s a close call. The true test will come when the CBO looks under the hood and tests the administration’s numbers.
We will leave the verdict to the official scorekeepers. The president may need to go back to the drawing board to fulfill his pledge of not adding even “a single penny” to the deficit.
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