I’ve written before about my belief that the two Senate diva’s can be appeased even as the progressives get most of what they want. It’s about how you interpret the numbers. This article explains why:
The forthcoming budget reconciliation bill has been described by members of both political parties and in news reports as a $3.5 trillion spending bill. It isn’t. Such a description is inaccurate for several reasons.
First, the $3.5 trillion figure relates to the potential amount of spending increases and tax cuts, before offsetting savings are taken into account. Some expected parts of the bill with significant price tags — such as a good part of the Child Tax Credit and Child and Dependent Tax Credit expansions — are tax cuts; they reduce people’s tax bills. Raising the cap on the state and local tax deduction is another tax cut. So are the “clean energy, manufacturing, and transportation tax incentives” listed as part of the package in a memo Senate Majority Leader Chuck Schumer (D-N.Y.) sent colleagues last month.
Second, the price tag for any bill — and a bill’s impact on deficits and debt — is the net of its cost-increasing measures, which can include both spending increases and tax cuts, and its offsetting savings — i.e., its spending reductions and tax increases. The budget resolution Congress just passed limits the net price tag of the reconciliation bill to no more than $1.75 trillion. This is seen in the budget resolution’s reconciliation instructions. In the Senate, those instructions allow committees other than the Finance Committee to approve new spending measures costing no more than $1.75 trillion over 10 years. With respect to the Finance Committee, the budget resolution requires it to fully pay for everything it does that has a cost. As a result, the cost of the bill as whole can’t exceed $1.75 trillion.
The widely cited $3.5 trillion figure assumes the Finance Committee will approve about $1.75 trillion in spending increases and tax cuts that are financed by an equivalent amount of tax increases and spending reductions (with the spending reductions expected to come from drug savings in health programs). The $3.5 trillion thus includes the cost of all of the spending increases and tax cuts without any of the offsetting prescription drug savings or tax increases.
If the approach used to arrive at the $3.5 trillion figure had been used for the 2017 Trump-era tax cut, that measure’s cost would have been said to be far greater than the $1.5 trillion figure used for it when the measure was enacted (later revised by Congressional Budget Office to $1.9 trillion), as the $1.5 trillion (and $1.9 trillion ) figures were net rather than gross figures.
The Center on Budget and Policy Priorities reports that if the 2017 tax cut had been assessed in the same manner used to arrive at the $3.5 trillion figure for the current reconciliation bill — if its cost measures were added up without its offsets taken into account — it would have been described as a package of more than $5 trillion.
When the Congressional Budget Office (CBO) scores the bill, there will be three headline numbers — the net spending increase, the net tax increase and the bill’s overall cost — none of which will be close to $3.5 trillion.
As noted, under the budget resolution, committees other than the Finance Committee can approve new spending of up to $1.75 trillion over 10 years, while the Finance Committee must pay for everything it approves. The Finance Committee is expected to seek savings from prescription drugs to fully cover the cost of measures expanding Medicare and Medicaid and bolstering subsidies for health coverage purchased in the Affordable Care Act marketplaces. Let’s assume for the sake of illustration that the Finance Committee secures $400 billion in drug savings and spends that amount on health insurance expansions. If the Committee is to approve a total of $1.75 trillion in spending increases and tax cuts as well as $1.75 trillion in offsetting spending reductions and tax increases — and if the drug savings bring in $400 billion — then the committee would be adopting $1.35 trillion in tax increases.
On the cost side, let’s assume that $600 billion of the assumed $1.75 trillion in Finance Committee previsions with a cost goes for tax cuts while the other $1.15 trillion consists of spending increases. If so, the CBO score for the package would show:
$2.5 trillion (not $3.5 trillion) in net spending increases (the $1.75 trillion for the other committees plus the $1.15 trillion for the Finance Committee, minus the $400 billion in prescription drug savings)
$750 billion in net tax increases (the $1.35 trillion in tax increases minus the $600 billion in tax cuts)
A $1.75 trillion increase in deficits over 10 years (before interest costs)
These figures are illustrative. But no matter what precise provisions the reconciliation bill ends up including — it will not be a “$3.5 trillion spending package” or anything close to it.
In other words, there are many ways to configure this thing that could conceivably kill two birds with one stone: help the American people and soothe the all-important egos of Kyrsten Sinema and Joe Manchin. Apparently, those are of equal priority in our system so they’ll just have to find a way to do that.