Biden’s Fuzzy Math Problem on Infrastructure
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.
Anecdote of the Day: Infrastructure and Ice Cream
President Biden traveled to La Crosse, Wisconsin, Tuesday to sell voters on the importance of his $973 billion bipartisan infrastructure deal. The Associated Press reports: “Biden, making an impromptu stop for ice cream after his speech, received a suggestion to order the rocky road flavor as a nod to the infrastructure bill but he quipped ‘it’s been a rocky road, but we’re going to get it done’ and instead ordered cookies and cream and strawberry.”
Democrats Risk Fracturing Over Infrastructure
Democratic leaders are scrambling to maintain a sense of unity over the budget and infrastructure legislation they have to define in the coming weeks, with progressives calling for a massive spending package in the range of $4 trillion and centrists pushing for a more modest proposal.
Speaking to a group of senior Democrats Monday, House Budget Committee Chair Rep. John Yarmuth (D-KY) reportedly cautioned against publicly debating the size of the overall plan, including the bipartisan bill negotiated by the White House and a group of centrists in the Senate and the larger but as-yet undefinded reconciliation bill that would provide more spending on Democratic priorities. “The details matter. And we don't have those yet,” Yarmuth said. “So it's just safer not to talk about top line numbers.”
In a speech Tuesday in Wisconsin, President Biden pushed hard for his bipartisan infrastructure deal. “I know that neither the Democrats nor Republicans got everything they wanted in this deal, it’s not all that I proposed but that’s what our economy is all about,” Biden said. “That’s what it means to compromise and reach consensus. And that’s what’s in the heart of every democracy.”
But back in Washington, House Speaker Nancy Pelosi (D-CA) made it clear that she plans to link the progress of the president’s bipartisan bill with the larger reconciliation package that Democrats expect to pass on a partisan basis — a linkage that Republicans have said could cause them to withdraw support for the bipartisan deal.
Pelosi’s strategy has the goal of keeping the Democratic caucus together. Some progressive Democrats may not support the smaller, bipartisan bill unless they know there’s another larger bill coming along with it. And most Democrats are reportedly supporting Pelosi’s approach.
The bottom line: As President Biden begins to sell his bipartisan infrastructure deal to the American people, Democrats are trying to keep it together amid internal divisions over just how big they plan to go.
IRS Warns on ‘Dirty Dozen’ Tax Scams
The IRS has released its annual rundown on tax scams to look out for, and this year’s “Dirty Dozen” list includes schemes related to the massive government effort to provide Americans with financial relief amid the Covid-19 pandemic.
“We continue to see scam artists use the pandemic to steal money and information from honest taxpayers in a time of crisis,” said IRS Commissioner Chuck Rettig. “We provide this list to alert taxpayers about common scams that fraudsters use against their victims.”
Intended to help taxpayers, tax professionals and financial institutions avoid falling prey to scammers, this year’s list is broken down into four categories:
* Scams related to pandemic aid, such as the theft of Covid relief checks;
* Stealing personal information through phishing, ransomware and phone "vishing” (voice-driven phishing);
* Cons focusing on unsuspecting victims, including seniors and immigrants, sometimes using fake charities;
* Schemes to get taxpayers to make payments they think will settle tax debts.
In addition to the theft of Covid relief checks, the IRS called out efforts by scammers to steal personal identities for the purpose of filing fraudulent unemployment claims aimed at claiming some of the enhanced jobless benefits provided by Congress. Taxpayers would not see those payments but might receive tax documents related to them. “The IRS reminds taxpayers to be on the lookout for receiving a Form 1099-G reporting unemployment compensation that they didn't receive,” the IRS says.