A better way to build back better

A better way to build back better

The House bill has a lot of good ideas — and a few big problems

By Matthew Yglesias for Slow Boring.com

December 2, 2021

The Build Back Better Act, as passed by the House of Representatives before the Thanksgiving holiday, contains a lot of good provisions that would help people and address serious issues. It achieves that by raising taxes on the rich.

That’s great. But it’s a little hard for people to get their minds around. Not because of “bad messaging” from Democrats, but because the legislation is genuinely capacious. Its primary animating impulse is in many ways climate change, but most of the money actually goes to social assistance programs. It includes a price cap on the out-of-pocket cost of insulin, but the social assistance spending isn’t primarily focused on health care. In terms of dollars, the largest financial commitments are helping parents and children, but the most significant permanent changes are to housing. And in terms of long-term growth impact, changes to legal immigration are arguably the most important aspect.

The bill is also likely to undergo significant revisions in the Senate, at which point we’ll have to see what the House can swallow.

And I would say that changes are warranted, because while the bill as written does a lot of good, it does a lot less good than you could achieve with this amount of money. The core problem with BBB is that it reflects a lack of focus and prioritization. The Affordable Care Act didn’t do anything at all to address child care or housing needs or climate change or a dozen other important things. But it did do a lot to improve health care, and it provided a lasting legacy for the Obama administration. BBB is bigger than the ACA, so it can take on more than one topic. But the House version tries to do too many things and allocates more than $600 billion on programs with phase-out schedules and program details that make them unlikely to be long-lasting.

We can do better.

My philosophy of budget math

Note that when journalists say the BBB spends $109 billion on a six-year universal preschool program, what we mean is that this is the CBO’s guess as to what the impact on federal spending will be.

Sometimes a law does something like create a $109 billion pool of funds and require that no more and no less be spent. But many BBB provisions do not have that structure. On pre-K specifically, it creates a matching program whereby the federal government will cover half the cost of creating a preschool program for three and four-year-olds within a six-year window. Crucially, how much spending that provision actually generates hinges on how various state legislatures react to it. In this case, the CBO’s estimate is not based at all on economic modeling — it’s a blind guess about politics.

(Joan Slatkin/Education Images/Universal Images Group via Getty Images)

My view is that in this case they are overestimating the cost, but not in ways that are flattering to the Democratic plan. We saw with the ACA Medicaid expansion that a 90% permanent match is appealing to all Democrats and a small minority of Republicans, and it has a good amount of stickiness such that nobody in expansion states is running on undoing it. I think if you cut that to a 50% match and make the match temporary, that flips, and only the most solidly Democratic states will be tempted.

That said, I think what really matters here is the CBO score because Democrats are determined to come up with a CBO score that says their bill doesn’t increase the deficit.

Alicia Parlapiano and Quoctrung Bui write in the New York Times that “budget experts say the true cost will be much higher if shortened programs are extended as many Democrats anticipate.” It’s true that budget experts say this. In particular, deficit-scold types like to say this because they don’t like it when members of Congress use phase-out gimmicks to hit CBO score targets. But I think characterizing the “assume all temporary provisions are extended” scenario as representing the “true cost” is a misleading error. For starters, in a system like ours with so many veto points, the default rules matter. But beyond that, while intended to encourage fiscal discipline, the habit established during the aughts of calling the full extension of the Bush tax cuts the “realistic baseline” ended up perversely discouraging fiscal discipline, making a partial extension (which is what Obama and congressional Republicans agreed on in the winter of 2012-13) look like it raised revenue.

As I wrote on Monday, I do not really approve of the CBO’s umpire role in American legislative politics. But that’s the role it plays, the scores are what they are, and the defaults matter.

The SALT gimmicks

This matters in turn because of arguments about the State and Local Tax Deduction (SALT) provisions of the House bill.

A long time ago in a galaxy far far away, Congress decided that taxpayers should be able to deduct their state and local income taxes from their federal income tax bill. All tax deductions are regressive, because a deduction is worth more to you the higher your marginal tax rate — i.e., the richer you are. But SALT was particularly regressive because richer people have higher state income tax bills. Yet SALT was also long perceived (in my opinion, based on relatively little hard data) as making it easier for blue states to obtain high levels of tax revenue. So when Republicans were crafting the Tax Cuts and Jobs Act in 2017, one of the ways they offset the cost of their corporate income tax was to cap the SALT deduction. A handful of moderate House Democrats led by Josh Gottheimer have been crusading to lift this deduction, and it’s become very controversial intra-caucus and online.

But the House bill employs a gimmick of lifting the cap for several years and then eliminating the deduction entirely at the very end of the scoring window, so it scores as revenue-neutral. This is of course a devious trick, but in my personal opinion, it’s fine. Blowing limited fiscal capacity on lifting the SALT cap would be terrible, but if you can make it work with smoke and mirrors, that’s fine.

The problem with the bill is that the actual spending provisions are just not as good as they could or should be.

The good in the bill

Let’s start on a positive note.

The bill includes a series of popular, relatively modest-scale permanent healthcare initiatives — $37 billion to add hearing benefits to Medicare, $15 billion to enhance Medicaid benefits, $7 billion to cap out-of-pocket insulin costs, $10 billion for more scholarships and to expand medical residencies. I love it, and I hope each of those becomes a campaign ad.

There’s also a big honking $500 billion investment in climate programs, including tax credits for renewable energy production, reforestation, clean hydrogen production, advanced biofuels production, soil conservation, electric cars, e-bikes, etc. This is all good stuff. I don’t necessarily think this all belongs in campaign ads, but it’s important and generally pretty well designed.

I think two other big things are pretty good, though I’m less enthusiastic about them.

One is the $150 billion investment in letting more elderly or disabled people get at-home care rather than institutional care. I’m not against this by any means; I’ve just never seen a really convincing argument that this is a welfare state investment with a particularly high cost-benefit function. Similarly, you all know I love housing, so I’m not going to complain about a $166 billion investment in affordable housing programs. But once upon a time, Joe Biden was embracing a really visionary plan from Cory Booker and James Clyburn to use federal money as a lever to tackle local zoning barriers. That would have been awesome, while the current plan is kinda meh.

So again, this $316 billion is not bad spending, but in a world where Democrats are running up against some hard fiscal constraints, it doesn’t strike me as the best use of the money.

The family plan mess

And then we have the family title. It includes, among other things:

$205 billion for a four-week paid leave program that starts in 2024 and doesn’t expire

$273 billion for a subsidized child care plan that phases in gradually between 2022 and 2025 and then expires in 2027

$109 billion for a pre-K matching program that expires in 2027

$185 billion for a one-year extension of the expanded Child Tax Credit, plus permanently making the CTC fully refundable

Now what I want to say is that Democrats should drop the first three bullets and just make the expanded CTC permanent. But that doesn’t free up enough cash.

What you could do, however, is scratch paid leave, child care subsidies, and the pre-K match, and then extend the expanded CTC through 2025. The advantage of that is a bunch of Trump tax cut provisions are scheduled to expire in 2025. The current thinking is that Republicans will enthusiastically seek to extend those or make them permanent, and Democrats will put up half-hearted resistance. If you extend the expanded CTC so that it expires at the same time as the TCJA provisions — including TCJA’s own expansion of the CTC — then I think there’s a fighting chance Democrats could get it further extended as part of that negotiation.

Every other expiration plan strikes me as crazy. Unless Democrats happen to hold a solid legislative trifecta in 2027 (which is very unlikely given how midterms normally go), there’s no way Republicans are agreeing to extend these pre-K and child care plans. It’s just a big pointless waste of money. But if you push CTC out to 2025, then I think as long as Democrats don’t get totally wiped out in 2024, they have a chance of further extensions. So that’s what I’d do.

What’s more, you’d then have about $200 billion left over from killing the other family plans. You could take Biden’s proposed one-year extension of enhanced EITC benefits and make that permanent ($117 billion), take his five-year enhancement of school lunch funding and make that permanent ($7 billion), take his two-year program to provide summer meals to hungry kids and make that permanent ($9 billion).

And then with what’s left you could fund the damn Apollo Program for pandemic prevention.

A better way to build back better

There’s actually even more good stuff in the bill that I haven’t talked about. We don’t know yet if the parliamentarian will agree to allow visa recapture, but that’s a very good and important idea. The bill also does some good things on job training and Pell Grant stuff, it makes Affordable Care Act subsidies more generous, there’s $36 billion more for infrastructure projects on top of what’s in BIF, and there’s $2 billion for telecommunications and connectivity.

There’s just a lot going on in this bill.

But I think my idea to streamline the family title — doing fewer things, but making more of the things permanent and giving the Child Tax Credit at least a fighting chance to be made permanent — would make the bill a lot better. Apparently, nobody in the White House or House or Senate leadership wants to tell the pre-K or child care groups that they are out of the bill. But giving those groups programs that expire in 2027 is the worst of both worlds: they won’t actually achieve the objectives the groups want, but they will cost a ton of money that could be used to make other, cheaper initiatives permanent.

Joe Manchin and especially Kyrsten Sinema have been huge pains in the ass throughout the 2021 legislative process. But love them or hate them, they are not afraid to tell progressive advocacy groups no. If they could find it within them to put their feet down on this topic and then re-use the money for good purposes rather than simply limiting tax increases, that would be an actual constructive intervention that would let us build back better even better.