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‘It’s a daydream’: Questions emerge about financing plans for bipartisan infrastructure deal

Offsetting $500 billion in new spending without raising taxes or adding to the deficit requires some creative math

President Biden and senators at the White House on June 24. (Demetrius Freeman/The Washington Post)

To pay for their proposed infrastructure package, the White House and a bipartisan group of senators agreed to reduce federal spending on unemployment benefits by about $70 billion. The administration says that the changes will not reduce benefits for jobless Americans and that their proposal will cut only fraud and waste, by improving “program integrity.”

But nonpartisan analysts estimate fraud and overpayments are likely to amount only to closer to $35 billion in unemployment spending during the next decade. Budget experts do not believe it is credible that lawmakers could cut unemployment spending by as much as 20 percent, as the plan suggests, with no impact on beneficiaries. The provision was endorsed in negotiations by Sen. Kyrsten Sinema, a centrist Arizona Democrat, according to two people familiar with the matter who spoke on the condition of anonymity to describe private deliberations.

“The idea there’s any large-scale fraud is nonsense — they’re clearly not going to get $70 billion from cutting people who are getting benefits improperly,” said Dean Baker, a liberal economist at the Center for Economic and Policy Research.

The fuzzy math on unemployment benefits is just one of the debatable assumptions the Senate and White House dealmakers made in claiming they are paying for more than $500 billion in new infrastructure spending with new revenue.

No issue emerged as a greater obstacle to the bipartisan infrastructure negotiations than how to pay for it, with lawmakers hemmed in by political realities constraining their options.

Republican lawmakers have refused to raise taxes on corporations and the rich, ruling out the White House’s preferred proposals. The White House, meanwhile, refused to raise taxes on Americans earning less than $400,000 a year, which led them to rule out a gas tax that some of the lawmakers had pursued.

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The resulting compromise consists of a hodgepodge of measures that are unlikely to create actual revenue that pays for the spending plan, according to a half-dozen experts interviewed by The Washington Post. Instead, a number of the proposals take advantage of budget maneuvers to mostly satisfy budget scorekeepers.

Policymakers involved in the deal acknowledged details are sparse for now because key parts of the legislation are still being worked out. The administration has not publicly outlined the expected revenue from any of the financing provisions, stressing savings from increased tax enforcement.

Still, the extent of hazy budget math central to the deal has surprised some experts.

The deal includes $65 billion from the proceeds of selling the spectrum used by telecommunication companies to run 5G. That sale occurred in February, a White House official confirmed, but is being counted as new savings for the plan. The White House official spoke on the condition of anonymity to discuss details of a plan that had not been finalized.

The plan also includes repurposing about $80 billion in coronavirus relief funding that nobody has yet identified or agreed to.

Lawmakers say they will raise $6 billion from sales of oil from the U.S. Strategic Petroleum Reserve — but the oil will have to be repurchased at a later date, making the actual savings unclear. The White House official said Congress frequently relies on sales from the reserve.

Infrastructure deal could help the IRS target tax cheats

The deal calls for extending the “mandatory sequester,” or cuts to government programs that take place automatically if certain revenue targets are not met. Congress has waived those cuts repeatedly during the past decade, and there is little reason to believe lawmakers will not do so again. Some experts said this change did amount to a meaningful spending cut.

An additional $60 billion in savings comes from “dynamic scoring,” or assumptions that the growth effects of the plan will cause a jump in tax revenue. Economists say the estimates might prove plausible but represent a major change from traditional scorekeeping of spending plans.

Several infrastructure experts questioned whether the plan would in fact raise $100 billion from “public-private partnerships” and other collaborations with industry groups, given some of these measures are likely to increase the bill’s price tag.

“It’s a daydream to think they can take a list of proposals like this and pay for a $1 trillion or $500 billion plan. There’s not a chance they’re going to get it off a list like this,” said Howard Gleckman, a policy expert at the Tax Policy Center, a nonpartisan think tank. “It’s full of stuff that isn’t a tax increase and isn’t a spending cut and is just wishful and fanciful.”

White House officials stress the plan’s historic $40 billion investment in the IRS — which many academics say could produce hundreds of billions in new federal revenue through a crackdown on tax cheats. Details are sparse, but some forecasts say it could help recoup more than $100 billion in unpaid taxes. Career staffers at the Treasury Department have projected a large return on investment from more IRS funding — finding that an $80 billion investment in the IRS would lead to $245 billion in net savings.

However, it is unclear whether Republicans ultimately will sign off on using the extra IRS funding to come down on wealthy tax cheats and big corporations, which is the administration’s priority. What some experts regard as the most effective way to bring in additional revenue from tax cheats — imposing additional reporting requirements on financial institutions — has been ruled out of the final agreement, according to congressional aides.

What’s in the White House, Senate bipartisan infrastructure package

Several congressional aides and economists played down the importance of actually offsetting all the new spending with revenue. Many experts have long maintained that new infrastructure spending does not need to be paid for, because it improves the nation’s productivity and damps fears that excess spending could lead to runaway inflation. Interest rates remain low, which makes federal borrowing cheap.

They also stress the importance of the spending side of the agreement. The deal would provide hundreds of billions for the United States’ physical infrastructure, such as roads, bridges, highways, ports and waterways. The White House says the agreement includes enough funding to upgrade all of the country’s lead pipes, providing clean drinking water to 10 million, as well as more than $70 billion for improving the nation’s electric grid, a crucial step to accelerate deployment of renewable energy sources.

“I don’t think it needs to be paid for,” said Jason Furman, who served as a top economist in the Obama administration. “Some of the pay-fors are real, some of them are less real, and from an economic perspective, that’s fine. These are long-term investments that will pay off over time.”

The United States faces an annual budget deficit of more than $1 trillion for much of the next decade, and Democrats have ambitions to pass another spending package with expanded social programs in child care and education. They are likely to pay for that plan at least in part, but Biden’s proposed taxes on the rich face skepticism among many members of his own caucus.

Negotiators have claimed for weeks that their package will be fully financed.

In a joint statement, the 10 senators involved in negotiations said, “This investment would be fully paid for and not include tax increases.”

Sen. Rob Portman (R-Ohio), a lead negotiator for the Republicans in the group, said on “Meet the Press” earlier this month: “It is paid for. It’s paid for without raising taxes.”

Sen. Angus King (I-Maine), a centrist lawmaker, told NPR last week: “The key is it’s paid for. Unlike a lot of the spending that is done down here ... this isn’t being borrowed from the next generation.”

That does not appear to be the case, according to budget experts, although the nonpartisan Congressional Budget Office will render an official verdict on the package as it gets closer to passage.

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“I’m thrilled the agreement includes offsets, but I worry they are going to generate much less than reported,” said Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget, a nonpartisan organization.

The estimated cuts to fraud in unemployment benefits “could be larger than the total amount of fraud we expect over the next decade,” Goldwein said.

The White House official said he understood why experts are skeptical of the projected savings under normal economic circumstances but pointed to two major crises over the past decade that put enormous strain on the federal unemployment system and led to significant levels of fraud. In the event of another historic crisis, the official said, it is possible for better unemployment systems to result in very high levels of government savings.

Other issues abound. The White House also includes as one of the key sources of revenue: “Public-private partnerships, private activity bonds, direct pay bonds and asset recycling for infrastructure investment.” Congressional aides involved in negotiations have said these provisions are expected to raise about $100 billion to offset the cost of new spending.

Some experts are dubious of that assessment. “Public-private partnerships” refer to a method of government procurement in which to finance construction, private companies mix private capital with public loans and bonds that receive tax benefits. It is unclear why the negotiators think this will lead to more tax revenue. “Private activity bonds” give investors a tax break from investment income in infrastructure-related projects, which could lead to less federal revenue. “Asset recycling” — the practice of auctioning off government assets — could bring in some revenue but is far more likely to be done at the state and local level than by the federal government, and the new revenue created would probably be minimal, said Kevin DeGood, an infrastructure expert at the Center for American Progress, a center-left think tank.

“It’s not clear why public-private partnerships, private activity bonds and asset recycling are being treated as a revenue source for the federal government,” DeGood said.