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The Curse of Artificial Scarcity

As reconciliation elements get marked up, we see the consequences of
tying spending and revenue together.

 

Speaker of the House Nancy Pelosi meets with reporters to discuss
progress on President Joe Biden's domestic agenda, September 8, 2021,
at the Capitol. (J. Scott Applewhite/AP Photo)

 

****

**** In theory, it should be a hopeful day for those seeking
a better future for American families. The most important House
committees begin their markups

of the $3.5 trillion Build Back Better Act (sometimes called the
reconciliation bill), setting out the terms of most of the key
education, labor, health care, and revenue elements of the legislation.

But instead of debating the finer points of how to most efficiently
deliver these benefits, there's been a combination of anxiety attacks
and Sophie's Choice-style decision-making among the Democratic
caucus. Suddenly, a bill that represented the promise of the party's
agenda is being ground down into paste, for the benefit of
self-regarding conservative members
.

One shouldn't get too despondent over this. The path to this bill
becoming law was always going to be wobbly, and Democratic aides I've
corresponded with still exude confidence that some facsimile of the
original bill will get through the sausage-making. But the reason it

**feels** so bad, so off of the rails, involves the inevitable
consequences of how this was all structured in the first place.

Back in April, I started to get really concerned

about the tone being set by the president and his team, stressing
deficit neutrality as much as the gaps in society this package would
fill. They made very clear that the COVID relief passed in March was
unusual emergency deficit spending, and that the investments in the
Build Back Better agenda would be offset. "So how do we pay for my
Jobs and Family Plans? I've made clear that we can do it without
increasing deficits," Biden said in his first address before Congress.

That linkage was critical, because it meant that any rollback on the tax
and revenue side would have to be met with shrinkage on the spending
side. It wouldn't have been hard to say something like: "There are
excellent reasons to raise taxes on the rich because of the top-heavy
society we live in, and we should also make these investments to improve
our country and bring dignity to every working person. But they are
separate issues and we should deal with them separately."

**Read all of our infrastructure coverage here**

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Then, as now, there wasn't any consensus on the revenue side.
Democrats, who all seem to regard themselves as tax experts, cannot even
agree to simply return to the 2017 status quo, before the Trump tax
cuts, which could yield as much as $3 trillion
.
Then, the corporate tax rate was taken down from 35 percent to 21
percent. There's now only enough consensus to pull it back to 25
percent
,
not the 28 percent Biden proposed. Biden's capital gains tax changes
have been under

constant assault

by the business lobby
.
The international tax reform envisioned by Senate Finance Committee
chair Ron Wyden (D-OR) was so weak

it prompted a backlash

among committee Democrats. Even with stronger enforcement, there's
nothing close to what would be needed to finance a $3.5 trillion bill.

If the issues were being decided separately, you could just move on with
designing the optimal spending and borrow for the rest. That's what
centrists like Sen. Joe Manchin (D-WV) did on the bipartisan
infrastructure bill, after all. But Manchin, sensing that Democrats
would try to delink spending and revenue
,
counterattacked by disclaiming the very maneuver he endorsed to get the
infrastructure bill passed. He raised skepticism to Axios

that you could count on long-term economic growth to finance
"'human' or 'soft' infrastructure proposals." (This is
preposterous; academic research routinely shows that public investments
of all kinds pay off; every dollar invested in early-childhood education
yields $7.30 in societal benefits ,
per one account.

**)**

That brought us back to the framework initially set up by Joe Biden and
his Treasury secretary Janet Yellen
,
that all the spending has to be offset. The rest takes care of itself.
The taxes have already been eroded, and now we're seeing the
inevitable chipping away of the spending. Manchin told Axios

he would only be comfortable with $1 trillion to $1.5 trillion in
spending, and really that's an expression of what taxes he would be
willing to support. The artificial scarcity created by linking spending
and revenue is killing this bill.

Jonathan Cohn reported Tuesday night

that home and community-based services for seniors and disabled people,
scheduled originally at $400 billion, was down to $150 billion, a level
at which it would be nearly impossible to guarantee services for
everyone who needs them and higher wages for caregivers. I heard that
number a week ago, and I'm sure Manchin did too, because in the Axios
piece he decided to "voice concern" about home care, which he surely
already knew was being cut.

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A plain-English version of tomorrow's House Ways and Means Committee
markup, available here
,
shows what happens when you start negotiating with yourself. The fine
print now shows
that
Medicare dental benefits wouldn't come online until 2028; while
Medicare officials had warned it would take up to five years

to work out that benefit, clearly this delay is being done to save money
in the ten-year budget window, similar to how Obamacare's benefits
didn't kick in for four years. There's an ongoing House-Senate fight

over whether to permanently fund subsidies for the Obamacare exchanges,
offer Medicaid in non-expansion states, or add the Medicare dental,
hearing, and vision benefits, rather than do all three, as the proposal
initially said. The only way to get to that skinnier topline number is
to make these kinds of concessions.

Similarly, the paid family and medical leave

markup begins to significantly lower the replacement rate for workers on
leave if they make more than about $34,000 a year. Workers with annual
incomes below that figure will get between 75 percent and 85 percent of
their wages, but above that, the typical worker is more likely to get
around 65 percent. In state family leave programs, a 65 percent level of
replacement has made participation in the program too unaffordable to
opt in
,
which of course makes it cheaper. The program also doesn't start until
July 2023, another budget-conscious delay.

One way out of the box is aggressive use of the big budget savings in
the bill, prescription drug price reform. But if anything, there are
more lobbying forces

arrayed against that than the tax increases. And Joe Manchin, the father
of former Mylan CEO and EpiPen monopolist

Heather Bresch, probably isn't keen on that idea either.

There's certainly not going to be any "pause" in the legislation
, as Manchin
called for last week. But what we're left with is in some ways worse.
The rhetoric of fiscal responsibility serves as a fiscal straitjacket
tightening around the Biden agenda. What needs real attention is how to
properly design a national paid leave program that interacts with those
at the state or employer level (the implementation here frankly looks
like a mess
), or how to
best deliver the Child Tax Credit or universal pre-K or tuition-free
college. As centrist Rep. Abigail Spanberger (D-VA) put it, we should be
looking at outcomes
. Instead,
we're fitting a 50-pound barbell into a 25-pound box, for entirely
fake reasons.

This was in part preordained by a Democratic majority so thin that
practically every member of Congress is empowered to extract their
price. There will be time to assess at the end what the bill actually
does and if it improves people's lives. (At this point, I'd say
three or four big things would be more likely to meet that goal now than
15 to 20 compromised and constrained ones.) But the way that Biden set
up the deficit blind canyon was uniquely unhelpful. And it's coming
back to haunt him now.

To read more about infrastructure and the Build Back Better Act, check
out our series Building Back America
.

 

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