President Joe Biden faces a pair of thorny math problems in trying to enact his infrastructure agenda.
The first, amply covered by the political press, is simply securing enough votes to ensure that the infrastructure deal reached with a bipartisan group of senators and a separate Democrat-only package covering the rest of Biden’s agenda can pass. The second, which could also cloud the fate of Biden’s bipartisan deal, involves the financing mechanisms the senators agreed to — which, as budget expert Howard Gleckman of the nonpartisan Tax Policy Center writes, largely amount to “pixie dust.”
The bipartisan framework Biden and senators agreed to calls for spending $973 billion over five years, a boost of $579 billion over previously planned levels. How to pay for that new spending was always a stumbling block, given that Republicans ruled out Biden’s proposed tax increases and the White House shot down the idea of indexing the gas tax to inflation or imposing user fees on owners of electric vehicles. Another option, finding offsetting spending cuts, never seemed to gain much traction.
What negotiators ended up instead with was a mix of other pay-fors that analysts said from the start were likely to raise far less in revenue than the bill will cost, leaving lawmakers to borrow much or most of the money they’re looking to spend.
“They’ve settled on a grab-bag of narrow revenue raisers and promised spending reductions that likely never will happen,” Gleckman explains. “Or if they do, they’ll generate far less than the plan’s backers hope. Some of the ideas have been used to pay for spending increases as far back in the 1980s. They didn’t achieve the goal then. They won’t now.”
* Unemployment benefits: The negotiators agreed to cut federal spending on unemployment benefits by some $70 billion by reducing fraud and waste in the program. But analysts estimate that such cuts will total closer to $35 billion over the next decade, The Washington Post’s Jeff Stein reports. “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,” Dean Baker, a liberal economist at the Center for Economic and Policy Research, tells Stein.
* Repurposing Covid relief funds: “The plan also includes repurposing about $80 billion in coronavirus relief funding that nobody has yet identified or agreed to,” Stein reports.
* Extending the “mandatory sequester”: The deal also calls for extending the “mandatory sequester,” or automatic cuts to programs, including Medicare payments to providers, implemented if Congress fails to hit certain budget targets. “Congress has waived those cuts repeatedly during the past decade, and there is little reason to believe lawmakers will not do so again,” Stein writes.
* Selling oil from the Strategic Petroleum Reserve: Lawmakers say they’ll raise $6 billion, “but the oil will have to be repurchased at a later date, making the actual savings unclear,” Stein notes.
* 5G spectrum: The deal includes $65 billion from selling 5G spectrum. “That sale occurred in February, a White House official confirmed, but is being counted as new savings for the plan,” Stein says.
* Dynamic scoring: The macroeconomic benefits of the infrastructure investment plan are reportedly being counted on for another $60 billion in additional tax revenue. “But these investments inevitably will be a mix of needed projects and bridges to nowhere,” Gleckman says. “Before knowing the mix, trying to calculate the overall economic benefits is a fool’s errand. That won’t stop supporters from putting some formulaic number on them. But any resemblance to what turns out to be reality will be purely coincidental.”
* Public-private partnerships: These methods of financing infrastructure investment are expected to generate about $100 billion in revenue, but some experts question that total, noting that some could reduce revenue rather than raise it.
* Reducing the tax gap: Negotiators reportedly agreed to a $40 billion increase in the IRS budget, which they project will generate in the collection of $100 billion in unpaid taxes. Some analysts say that the actual revenue gains could be even higher, but it will take time for the IRS to ramp up its staffing and enforcement efforts, and Stein notes that Republicans may balk at using the additional funding to crack down on wealthy tax cheats and corporations. “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,” Stein adds, citing congressional aides.
More borrowing ahead? Some economists argue that the new spending doesn’t have to be fully offset because the infrastructure investments will improve productivity and thus help reduce fears about rising inflation. And, they add, interest rates remain low, making this a good time to spend. “I don’t think it needs to be paid for,” Jason Furman, a top economist in the Obama administration, tells Stein. “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 bottom line: The Congressional Budget Office will issue an official score as the package moves through Congress, but the negotiators behind the bipartisan deal have insisted it will be fully paid for and that’s not likely to be the case. “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,” Gleckman told the Post. “It’s full of stuff that isn’t a tax increase and isn’t a spending cut and is just wishful and fanciful.”
That could be an obstacle to the deal’s passage. Senate Minority Leader Mitch McConnell has said Republicans “need to see whether the proposal is credibly paid for." Right now, it doesn’t appear to be.