Budget gimmicks that encourage massive spending deals should be avoided

Senators have drafted a pair of massive bills that would provide more than $4 trillion in infrastructure, health care and other initiatives. They insist they will fully fund both plans.

Budget gimmicks that encourage massive spending deals should be avoided

Senators have drafted a pair of massive bills that would provide more than $4 trillion in infrastructure, health care and other initiatives. They insist they will fully fund both plans.

24 July 2021 Saturday 14:02
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Budget gimmicks that encourage massive spending deals should be avoided

They will.

Both parties have relied for years on toothless budget gimmicks in Washington to finance their priorities. These contrivances allow lawmakers to claim that they are fiscally responsible, while inflicting little harm on voters or contributors through tax increases and spending cuts.

Here's another way they might do it:


For political and procedural reasons, Congress' Democratic leaders are slicing President Joe Biden's domestic spending agenda into two bills. One is bipartisan effort providing about $1 trillion for roads, broadband and other public works projects. The bargainers are hoping to strike a final deal this week.

The other bill would aim $3.5 trillion at expanding Medicare coverage, slowing climate change and providing free prekindergarten and community college. The Democrats are expected to push this massive package for months, and it will draw unanimous Republican opposition.

An additional $4 trillion would only be a 6% increase on the $63 trillion Washington has already spent over the next decade. However, it would be impossible for politicians to find $4 trillion in spending cuts or tax increases to cover its costs.


Getting Real

Some savings suggestions are valid.

Democrats, led by Ron Wyden (D-Ore.), Chairman of Senate Finance Committee, are seeking to raise taxes on wealthy corporations, large companies, and companies that earn income overseas in order to pay for a significant portion of the $3.5 trillion package.

It would be difficult to raise more taxes. The lawmakers find themselves caught between Biden's promise not to raise taxes on those earning less than $400,000 per year and the opposition of the GOP to President Donald Trump's 2017 tax cut. William Hoagland, a former top Republican Senate adviser, said that "it's the perfect storm to not do anything real on the revenue-side."

Also real are proposals to beef up the IRS budget so it can collect more unpaid taxes and, perhaps, to claim the bills themselves would generate more government revenue by stimulating economic activity.

Both could be too extreme.



It is not difficult to see how a larger IRS could levy more taxes on scofflaws. The economy will thrive if there are programs to help people get healthy, educated, and move goods more efficiently.

However, the question is how much federal revenue these two ideas would generate. Outside analysts and government agencies have divergent views about how legislation will affect economic growth.

To critics' dismay, lawmakers could be quick to claim that they have fully funded their proposals.

Marc Goldwein (senior policy director, nonpartisan Committee for a Responsible Federal Budget) stated that basketball is a game where you can't choose your ref.



The Congressional Budget Office is the nonpartisan accountant for lawmakers and estimated last year that Congress could collect $61 Billion more taxes in the next ten years by giving the IRS an additional $20 Billion.

Other people are more generous than Democrats, which could be a boon for Democrats who want to finance their $3.5 Trillion proposal.

Nonpartisan research group Penn Wharton Budget Model projected that Biden’s $79 billion increase for the IRS would generate $480 billion more revenue. The Treasury Department estimated that Biden's plan would result in a revenue increase of $779 billion.



Documents reveal that both the bipartisan infrastructure plan and the separate $3.5 trillion measure by Democrats may claim savings from the long-term economic growth they would supposedly stimulate.

Dynamic scoring is a term that Republicans use to describe their tax cuts as "cost-free". This is not true.

Trump's Treasury secretary Steven Mnuchin repeatedly stated that the tax cuts would pay for themselves. CBO instead estimated that the measure would increase federal deficits by $1.9 trillion in a decade, even if it included increased economic activity.

Democrats have long ridiculed dynamic scoring as a Republican trick to claim savings, but these savings may not materialize in order to conceal the true cost of their tax-cutting agenda. Senator Budget Committee Chairman Bernie Sanders (I-Vt.), was one of its most vocal critics. Sanders called dynamic scoring "voodoo economys" in 2015. Sanders' office declined to comment on this story.

Democrats claim that tax cuts can spur economic growth. However, they can also be used to strengthen productive programs like education and transportation. This is possible if there's not "so many spin on the ball that it's basically closing a budget deficit with magical thinking," stated Sen. Brian Schatz (D-Hawaii).

Referring to past GOP support for dynamic score, Sen. Roy Blunt (R-Mo.) said that "Maybe on the topic I would just simply say, 'Welcome, team.'

CBO provided some estimates of dynamic scoring, but warned that projections are uncertain.



Negotiators for both bills are eager to make savings and assume that Biden will remove Trump's regulations regarding drug rebates. CBO estimated that these rules would cost $177 billion to the government over a decade. Therefore, blocking them would decrease expected spending.

Trump's rule was never implemented. Washington is running record-setting deficits each year, so repealing the rule would mean that you could claim savings and use those funds to pay spending bills. It's like a family in deep debt cancelling a $50,000 vacation and then using those "savings” to purchase something else.



Senate Democrats claim that spending and tax credits in their $3.5 trillion bill could last less than the full 10 year life span of the measure. This would limit the price of the legislation.

Both parties have a history in which they put early expiration dates on programs that are so popular that Congress will likely renew them. Republicans did the same with President George W. Bush’s 2001 tax cut. It was mostly extended.

According to the Committee for a Responsible Federal Budget, the total cost of policies in the Democrats' $3.5 Trillion plan over 10 years is $5 trillion.

Another questionable proposal is to sell oil from the government’s Strategic Petroleum Reserve. This inevitably gets filled, sometimes at a higher cost. Also, take credit for the proceeds of the federal auction on 5G spectrum airwaves.



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