Three Questions About the Democratic Spending Plan

Three Questions About the Democratic Spending Plan
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The Biden administration and its allies in Congress want to use fast-track rules — budget reconciliation — to push their $3.5 trillion spending plan through the House and Senate, with votes possible in both chambers within weeks. They seem to believe that a more deliberative and careful process will not be helpful to their cause. Perhaps that is because there are many legitimate and unanswered questions about its contents and merits, and also about the rushed process for considering it.

Proponents of the emerging plan are trying to build political momentum by touting its historic significance. In reality, the bill is more of the same, in that it creates scores of new entitlement programs that will expand and grow over time. This formula has been repeated frequently over the past half-century. Even so, the emerging bill does stand out for its high initial cost ($3.5 trillion over ten years), and for that reason deserves especially heavy scrutiny.

The following are just three of the many questions that should be addressed before Congress proceeds any further.

  1. Is the Byrd Rule This Flexible? Congress and the administration are using the budget reconciliation process to advance this agenda because it allows them to bypass the minority party in the Senate. But the budget reconciliation process was created to expedite budgetary adjustments, not to create entirely new programs. To oversimplify, the Byrd rule, which applies only to Senate consideration of these measures, is supposed to screen out provisions that go beyond a budgetary orientation. It has been waived many times previously but only when the provisions in question enjoyed sufficiently broad support (at least 60 votes). 

    From media reports, it seems congressional Democrats and the administration want to push the boundaries of what is permissible in reconciliation, to the point of making the Byrd rule irrelevant. Among the provisions under consideration for inclusion in the measure are: liberalizations of federal immigration laws; a new authority in Medicare allowing the Secretary of Health and Human Services to directly negotiate drug prices with manufacturers; a new option in Medicaid allowing low-income residents in the states that did not accept program expansion authorized by the Affordable Care Act to gain separate, federally-financed coverage; a new home health expansion in Medicaid; a new universal child care entitlement; a new community college program; and new coverage in Medicare for dental, vision, and hearing services.

These provisions are different in kind from an increase in a tax rate, a cut in what Medicare pays for an existing service, or even a temporary increase in the federal share of existing Medicaid obligations. All of these adjustments are primarily budgetary in nature, and thus would fit within the traditional understanding of the reconciliation process.

The emerging legislation looks nothing like a narrowly drawn budget bill. It is page upon page of text that is properly understood as authorizing legislation. As just one example, the provisions handing drug pricing authority to HHS begin with the establishment of a new “Fair Pricing Negotiation Program” and then runs for an additional 62 pages.
Proponents of these measures will argue that previous reconciliation bills also created new federal programs, such as the Children’s Health Insurance Program in the 1997 Balanced Budget Act. That is true, but those changes were included in bipartisan agreements and enjoyed sufficient support to clear the 60-vote hurdle. None of the provisions now being contemplated by the Democratic majority would survive a Byrd Rule challenge if the parliamentarian finds that they violate its terms.

Alternatively, if the Byrd Rule is interpreted to allow most of these provisions to survive, the purpose of budget reconciliation will have been broadened considerably, and the filibuster made nearly irrelevant. The pressure on both parties to repeat this playbook again will be immense.

  1. Will the Plan Slow or Accelerate Economic Growth? Senate Budget Committee Chairman Bernie Sanders and others in Congress contend the bill they are assembling should be allowed to add to future federal budget deficits using static estimates because, on a dynamic basis (with growth effects factored in), it will be neutral. That is far from certain, however. In fact, there are good reasons to expect the opposite will occur, with a slowdown in future growth.

Dueling projections are complicating the debate. The plan’s sponsors point to estimates from Moody Analytics to bolster their case. In an analysis from July, the forecasting firm estimated the budgetary effects of the reconciliation bill would be roughly neutral over the coming decade when combined with the effects of the infrastructure plan because real GDP will grow more quickly than it would without their enactment. Moody estimated real GDP in 2031 would be 2.0 percent greater with the enactment of the reconciliation bill than it would be with just the infrastructure plan in place.

Economists running the Penn Wharton Budget Model see things differently. They estimate the infrastructure plan would have no discernible effect on long-run growth while the reconciliation bill will reduce real GDP by between 4.0 and 4.8 percent, depending on certain assumptions. Among other things, the model projects the reconciliation bill will have significant anti-growth effects from its large increases in marginal tax rates.

Congress should gather more information to determine which projection is most likely to be accurate. That can be done by requesting a full, combined assessment of the dynamic effects of the bill from the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT). Their forecast would carry great weight and might influence the policymaking process. 

  1. Where Are CBO and JCT’s Static Estimates? Speaking of CBO and JCT, where are their static estimates of the budgetary effects of the scores of programs and tax changes now being approved in various House committees? Their analyses of the key provisions of the emerging bill are critical to a sensible debate. House leaders are signaling they may hold a vote on the entire measure by the end of September, which means it would occur without a full assessment of its implications by the nonpartisan agencies entrusted with conducting such analyses.

    It is not just the budgetary effects of the bill that are required. CBO and JCT often provide other crucial information, such as the distributional effects of the tax and spending changes, and the potential administrative hurdles that might make implementation of the law difficult. To this point, there have been no publicly available analyses from these agencies on any of the key provisions.

    These agencies should be given the time required to properly review the actual legislative language in order to provide a full assessment of its major fiscal and economic implications.

The federal government has taken on substantial new debt to counter the effects of the COVID-19 pandemic. That was largely unavoidable. At this point, however, the economic emergency has passed. The administration and its allies in Congress believe another round of new spending, and much higher taxes, is necessary to strengthen the American economy further. But there are many reasons to question that assumption. As one key member of the Senate has suggested, a strategic pause is in order, to reassess what is required fiscally and economically, and to avoid making mistakes that could have lasting consequences.

James C. Capretta is a Contributor at RealClearPolicy and is a senior fellow, and holds the Milton Friedman Chair, at the American Enterprise Institute.

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