Budget Office Determines Democrats’ Spending Bill Will Nudge Deficit Higher
WASHINGTON — The nonpartisan Congressional Budget Office said on Thursday that President Biden’s sprawling climate change and social policy package would increase the federal budget deficit by $160 billion over the next 10 years.
That determination was at odds with Mr. Biden’s pledge to fully pay for nearly $1.85 trillion legislation but was unlikely to stop House Democrats from approving the bill as soon as Thursday evening.
The budget office’s analysis found that the bill’s tax cuts and spending programs were almost — but not entirely — offset by new revenue and spending cuts. The package would be largely paid for with tax increases on high earners and corporations, which were estimated to bring in nearly $1.5 trillion over 10 years. Savings in government spending on prescription drugs were estimated to bring in another $260 billion.
The fact that the bill could slightly add to the federal deficit over the next 10 years was unlikely to dissuade House lawmakers from proceeding to vote for the bill, in part because the analysis boiled down to a dispute over a single line item: how much the Internal Revenue Service would collect by cracking down on people and companies that dodge large tax bills.
The budget office predicted that the total impact on the federal deficit from the bill would be $367 billion over 10 years. But that estimate did not include the $207 billion in additional revenues the office estimates the I.R.S. would ultimately collect from tax cheats. Those revenues would shrink the projected deficit to $160 billion over 10 years.
The estimated money raised from I.R.S. funding was far less than the $400 billion the White House estimated it would bring in over a decade, both through enforcement actions and by essentially scaring tax cheats into paying what they owe. White House officials and past I.R.S. commissioners say the budget office’s estimates are too conservative. Using the White House estimates for I.R.S. revenues, the overall bill would actually reduce the deficit by $112 billion.
Democrats, who have stuffed the bill with long-desired priorities and policy changes, took turns on Thursday highlighting its array of environmental provisions, an expansion of health care and support for education and child care.
“We have a chance to redefine our commitment to the American people and to move toward a more just, equitable and perfect union,” said Representative Jimmy Gomez, Democrat of California.
Speaker Nancy Pelosi talked up the areas of agreement that Democrats had reached in both the House and the Senate: universal prekindergarten, generous assistance with child care costs, prescription drug price controls and home health care for older Americans.
Senator Ron Wyden, Democrat of Oregon and the chairman of the Senate Finance Committee, dismissed the budget office’s analysis of how much the I.R.S. could catch from tax cheats and said that he agreed with the Treasury Department’s rosier projection.
“I’m confident in the Treasury Department’s estimate, which is backed up by experts and I.R.S. commissioners appointed by Republican and Democratic presidents,” he said in a statement.
Passage of Mr. Biden’s signature bill has been held up for weeks by infighting among Democrats, who have sparred over which priorities to include and how to pay for the measure, with some insisting that it not add to the federal budget deficit.
Until Thursday, it was unclear what House Democrats would do if the bill was found to add to the deficit. But some moderate Democrats have signaled that they are likely to side with the administration’s position that the deficit impact will be negligible.
“While I continue to have reservations about the overall size of the legislation — and concerns about certain policy provisions that are extraneous or unwise — I believe there are too many badly needed investments in this bill not to advance it in the legislative process,” Representative Stephanie Murphy of Florida, a key centrist, said in a statement announcing her support for the legislation.
Such views could pave the way for the plan to clear the House in a final vote as soon as Thursday evening.
Still, the assessment from the budget office could complicate the bill’s prospects in the Senate, where the legislation is expected to change considerably if it hopes to pass on a party-line vote. Democrats have no votes to spare in the Senate, and moderates such as Senator Joe Manchin III of West Virginia have expressed concern that more spending could fuel further inflation, which is currently running at its hottest rate in 30 years.
There were bright spots for Mr. Biden and his party in the budget office analysis. It confirmed that in the eyes of the congressional scorekeepers, the Democratic bill would add significantly less to deficits over a decade than the large collection of tax cuts Republicans passed under President Donald J. Trump in 2017. The budget office initially estimated that those tax cuts would add about $1.5 trillion to deficits, even as Republicans claimed their cuts would pay for themselves.
The single biggest source of revenue stems from a new 15 percent tax that would apply to corporations that report more than $1 billion in profits to shareholders but not the I.R.S. The budget office found that a tax on so-called book income would raise about $319 billion over 10 years.
Senator Elizabeth Warren, the Massachusetts Democrat who proposed the new tax, released an analysis on Thursday morning showing that at least 70 of the largest companies in the United States would pay more as a result of the new levy. The report by Ms. Warren found that the tax would require companies such as Amazon, Facebook, FedEx, General Motors, Google, T-Mobile and Verizon to pay more to the U.S. government.
The analysis also suggests that the Democratic plan could begin to reduce budget deficits a decade from now, if provisions in the bill expire as scheduled. The bill’s tax increases are permanent, while many of its tax cuts and spending programs are set to be temporary, a move that Republicans have criticized as a budget gimmick intended to keep the overall cost down.
“Here what we’re doing is making smart long-term investments but offsetting those with tax increases,” Brian Deese, the director of the National Economic Council, said Sunday on ABC’s “This Week.” “When you do that, a fully paid for, you actually reduce the deficit over the long term.”
The Infrastructure Bill at a Glance
The bill receives final approval. The House passed the $1 trillion bill on Nov. 5 to rebuild the country’s aging public works system. The proposal is a central plank of President Biden’s economic agenda, which he signed into law on Nov. 15. Here’s what’s inside the bill:
Transportation. The proposal would see tens of billions of dollars in new federal spending going to roads, bridges and transportation programs. Amtrak would see its biggest infusion of money since its inception, and funds would be allocated to programs intended to provide safe commutes for pedestrians.
Climate. Funding would be provided to better prepare the country to face global warming. The Forest Service would get billions of dollars to reduce the effects of wildfires. The bill includes $73 billion to modernize the nation’s electricity grid to allow it to carry renewable energy.
Resources for underserved communities. A new $2 billion grant program is expected to expand transportation projects in rural areas. The bill would also increase support for Native American communities, allotting $216 million to the Bureau of Indian Affairs for climate-resilience and adaptation efforts.
Internet access. The bill includes $65 billion meant to connect hard-to-reach rural communities and low-income city dwellers to high-speed internet. Other provisions seek to stoke competition and transparency among service providers.
If a future Congress chose to extend those spending programs and tax cuts, though, or to make them permanent, and did not offset them with further tax increases, the bill would add significantly to deficits after a decade. Budget experts have warned of that possibility, which was also true of the Republican tax law. It set individual tax cuts to expire after 2025, even though Republicans immediately vowed to work to make them permanent.
Republicans have accused Democrats of gaming the budget rules by providing child care and health care tax credits and universal preschool that would expire but which Democrats hope will be made permanent. A new $80,000 cap on the state and local tax deduction would slip back to $10,000 for a year in 2030 before it expired the following year.
Mr. Biden has proposed trillions of dollars in tax increases on high earners and businesses, though he has vowed not to raise direct taxes on people earning $400,000 or less.
If the bill clears the House, it faces a difficult road in the Senate, where Republicans will have a clear shot to offer politically difficult amendments, any one of which could unravel the delicate Democratic coalition behind it. Two Democratic centrists, Mr. Manchin and Kyrsten Sinema of Arizona, have not committed to supporting it, and a single defection would bring the measure down in the evenly divided chamber.
Some significant provisions remain in play, including a measure to grant work permits and legal protection to many undocumented immigrants; funding for four weeks of paid family and medical leave; and a generous increase in the federal tax deduction for state and local taxes paid, to $80,000 a year from $10,000.
Liberals like Senator Bernie Sanders, the Vermont independent who is the chairman of the Budget Committee, and at least one centrist Democrat, Representative Jared Golden of Maine, have raised strong objections to that tax measure, which would amount to a major tax cut for wealthy homeowners who itemize their deductions. Mr. Sanders and other senators are discussing limiting who can benefit from the increased deduction based on income.
Having capped the deduction in their 2017 tax law, Republicans have also singled out the provision in their attacks on the legislation. Senator Mitch McConnell of Kentucky, the minority leader, scoffed, “I’m almost impressed our colleagues have found a way to be this out of touch.”
Some outside groups have found that the bill will not pay for itself. The Penn Wharton Budget Model at the University of Pennsylvania estimated it would add about $275 billion to the debt over a decade, before accounting for any effects of the legislation on economic growth. The Committee for a Responsible Federal Budget estimated it would add about $200 billion to the debt.
Republicans have used those analyses to cast Democrats as fiscally reckless and risking adding more to inflation rates.
During debate on the House floor on Thursday, Representative Jason Smith of Missouri, the top Republican on the House Budget Committee, said that the legislation “bankrupts the economy, benefits the wealthy and it builds the Washington machine.”
“Must be easy to be a Republican in Congress these days because you make things up, you can throw out numbers, without any fear of being contradicted,” Representative John Yarmuth, Democrat of Kentucky and the committee’s chairman, shot back.
White House officials have for weeks been bracing lawmakers for the prospect of a disappointing result from the budget office, arguing that it was using out-of-date models in some cases. They had reached an agreement of sorts with moderate House Democrats to use the administration’s assessment of I.R.S. enforcement revenues when evaluating whether the bill was fully paid for.