The president’s spending package is often described in news reports as costing $3.5 trillion over 10 years. But the president and his aides have argued that this is misguided because Democrats are proposing to fund this spending with tax hikes on the wealthy, tougher tax enforcement and other revenue raisers. Thus, while the gross cost might be $3.5 trillion, the net cost to the Treasury would be zero.
That’s the theory. But it’s worth recalling that this legislative package has evolved since Biden first claimed in the spring that his spending plans would not “add a single penny to our deficit.” One part of that package has already been pegged as a deficit-raiser, and in a bit of sleight of hand, the White House is now focused on the second part.
Let’s dig under the hood and figure out what’s going on here.
Originally Biden’s “Build Back Better” spending plan had two components — a $2.25 trillion 10-year infrastructure plan and a $1.8 trillion American Families Plan, which consisted 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.
Together, the two plans would have added $1 trillion to the federal budget deficit over 10 years. But over 15 years, White House officials argued, the plans would be in balance, as the tax increases used to fund the infrastructure spending would keep bringing in revenue long after the money was appropriated.
But since then, everything has changed through legislative sausage-making.
The infrastructure plan, which Biden wanted to pass on a bipartisan basis, shrunk to about $550 billion in new spending over 10 years and then was passed in the Senate with no tax increases — the price of winning GOP support.
The Congressional Budget Office estimated the plan would add $256 billion to the federal budget deficit over 10 years, but for complicated reasons that is a lowball figure. Marc Goldwein, senior vice president at the Committee for a Responsible Budget, says that buried in the CBO report is information that indicates the infrastructure bill would add $398 billion to the deficit.
It's also no longer funded by tax increases that would keep going; a big chunk of the funding comes from unused funds taken from a previous coronavirus bill.
Meanwhile, the other part of the plan is moving on a parliamentary track known as reconciliation. That means it can pass with a simple majority in the Senate because it is not subject to a filibuster. So no Republicans votes are needed. But it’s grown from $1.8 trillion to $3.5 trillion as climate-change elements from the original infrastructure bill and other Democratic wish-list items have been added.
Under the reconciliation instructions passed by the Senate, that spending will be offset with revenue raisers — such as tax increases on the wealthy and corporations — so the impact on the deficit will be as low as zero or as high as $1.75 trillion over 10 years.
A White House official told The Fact Checker that Biden is committed to making sure the final impact is zero, which is why he has been repeating this line in recent days. “It’s important to pass the bill with zero deficits,” the official said.
But it’s not so simple. Lawmakers are certain to play all sorts of budget games to achieve that mythical zero within the 10-year budget framework. One possible trick: terminating a new spending program early, before the 10 years is completed. That would “save” money — and require a future Congress to decide whether to continue a possibly popular benefit.
When passing tax cuts under reconciliation, such as President George W. Bush’s 2001 tax cuts and President Donald Trump’s 2017 tax cuts, Republicans made constant use of this tactic to lower the calculated deficit impact of the debt-financed tax cuts. The scorekeepers said the Trump tax bill inflated the deficit by $2 trillion over 10 years, but only because tax cuts for individuals — so touted by the GOP — were set to expire after 2025. That maneuver reduced the 10-year deficit forecast by about $500 billion. (Biden hopes to roll back the tax cuts for wealthier Americans to help pay for his spending plans but in theory they are due to disappear in four years anyway.)
Moody’s Analytics, in a July report, said the reconciliation bill would add about $600 billion to the deficits over 10 years but would be “more-or-less paid for” when the positive economic effects are calculated.
“On paper the plan is largely paid for and does not add meaningfully to the nation’s deficits and debt,” said the report by Mark Zandi and Bernard Yaros. “But there is a risk that spending and tax credits in the plan that are slated to ultimately expire will not — the politics of ending any government program are vexed. Heightened tax enforcement may also not raise as much additional revenue as anticipated as wealthy taxpayers will work to avoid paying more. The result would be larger federal budget deficits and debt.”
There’s a separate argument about whether increased spending should be paid for with spending cuts rather than tax increases. But under conventions of budgeting in Washington, a revenue increase can offset a spending increase.
Goldwein said he viewed Biden’s language as making a commitment that the reconciliation bill would not increase the deficit. “We will have to see whether he keeps that commitment,” he said, but he said the increased deficits from the infrastructure bill is “not a good start.”
The Pinocchio Test
This is a noteworthy pledge for the president to make. In 2017, Republicans had initially talked about a deficit-neutral tax cut but then quickly gave up.
Yet even if the reconciliation bill lands with a calculated deficit impact of zero, the president will still be in a deficit hole because of the bipartisan infrastructure bill. Originally the two bills were supposed to work in tandem, but now the White House claims only the reconciliation bill represents the president’s “Build Back Better” plan. That wasn’t the story in the spring.
On top of that, given our long experience in writing about the federal budget, we’re pretty certain a deficit score of zero would only be accomplished with some dubious gimmicks that help disguise the true cost of Biden’s agenda.
We’ll keep an eye on the final outcome, but for Americans not steeped in budget arcana, the president’s claim is misleading. For now, Biden earns Two Pinocchios — a number that could grow higher.
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