Build Back Better is poor policy built on a shaky fiscal foundation

With the House of Representatives voting for passage, there is finally a single, concrete piece of legislation that is the Build Back Better Act (BBBA) — at least until the Senate gets in on the act. 

And with the publication of the Congressional Budget Office (CBO) cost estimate or “score,” there is a lot more clarity about some key policy issues: 

  1. It is not fully paid for, despite continuous assurances to the contrary by the White House and Democrats on the Hill; 
  2. If the new entitlements are made permanent — as the crafters of BBBA truly envision — it will build a staggering new $2.9 trillion additional structural deficit into an already daunting fiscal outlook; 
  3. The BBBA is front-loaded on new spending and tax cuts, back-loaded on pay-fors, and as a result, a continued push on inflation pressures in 2022; and 
  4. The BBBA is riddled with design errors that undercut its drafters’ intentions. 

Let’s take these in turn. 

ADVERTISEMENT

The CBO says it plainly and simply: The BBBA will spend an additional $1.7 trillion and raise $1.3 trillion in new revenues. The additional 10-year deficit of $367 billion flatly contradicts the claim that the bill is fully paid for.  

Critics of the score argue that the “problem” is that the CBO estimated an additional $207 billion in new revenue from the $80 billion in spending on the Internal Revenue Service (IRS) instead of the $400 billion plugged in by the White House. Nonsense. If one wants to pass through Congress legislation using the congressional reconciliation process, then one has to abide by Congressional Budget Office scoring. The “problem” was not adhering to the full letter of the reconciliation process and having CBO scores at each step. That would have flagged the shortfall in time for it to be rectified elsewhere in the BBBA. 

The spending outstrips the revenues even though the BBBA is littered with “cliffs” and programmatic cutoffs that artificially reduce the cost of the legislation. If every new entitlement (child tax credits, pre-kindergarten, child-care subsidies, etc.) is extended for the full 10 years, the mismatch rises to $2.9 trillion. That is an additional structural deficit that adds to the $12.1 trillion already eating away at the economy’s financial foundation. Sustained deficits and ever-rising debt reduce productivity growth, stunt the growth in the standard of living and run counter to the claim that the goal is to have the economy work on behalf of the middle class.   

But if the BBBA becomes law, one will not have to wait through the entire 10-year budget window before trouble arrives. Inflation is the top economic and political problem and the BBBA will do nothing to help. The BBBA provides a tax cut in the first year — a total of nearly $40 billion — and has $115 billion in spending. That’s tantamount to including a $155 billion stimulus bill into the BBBA and additional stimulus is the last thing this economy needs. The damage done by the over-stimulus of the $1.9 trillion American Rescue Plan — passed in defiance of the reality that the economy was already growing at a rapid 6.5 percent clip — is visible to the naked eye (and the barren wallet). Passing the BBBA would be an impediment to countering the major macroeconomic policy error made earlier this year. 

But put aside sustaining the fires of inflation, gutting federal fiscal foundations and breaking the rules of reconciliation. The policies being put into place make no sense. When Americans want to expand the social safety net, they prefer that it be fair, efficient and contained. There is nothing fair about providing an extra $4,500 of taxpayer money for an electric vehicle made by union labor. It deploys the hard-earned dollars and taxes of workers against their own beliefs in right-to-work states. How is that fair?  

ADVERTISEMENT

It wastefully replaces private-sector benefits with taxpayer dollars. Put aside the debate over whether Americans want a government-run paid leave program. Many higher-paid workers have access to paid leave in their jobs. Why not create a paid leave program targeted at less-affluent, lower-paid workers? Instead, the BBBA puts everyone in the same government paid leave program, picking up the corporate tab for executives, bloating the cost of the bill and providing no additional advantage in expanding access to paid leave. It is the epitome of expensive inefficiency.  

Affordable child care is an issue in the United States. The BBBA “solves” this problem by mandating that child care providers (average salary roughly $30,000) be paid as well as elementary school teachers (average salary $60,000). Having doubled the labor cost of child care, the bill promises that the taxpayer will pick up any costs above 7 percent of household income. For a single mother making $100,000, the maximum cost is $7,000. After that, it doesn’t matter what child care costs. 

How many people are in the child-care years of their life-cycle and making enough money to care about the cost of child care? Essentially nobody. The provision is a money pump for providers to jack up the cost of child care, collect from the taxpayer and hold their clientele harmless. It is a recipe for out-of-control child care and subsidy costs.  

That is what the House has passed and sent to the Senate: A bill deeply flawed in its topline scale, year-to-year timing and provision-by-provision details.  

Douglas Holtz-Eakin is the president of the American Action Forum. He was the director of the Congressional Budget Office, 2003-2005, and was chief economist of the President’s Council of Economic Advisers, 2001-2002. Follow him on Twitter @djheakin.