A Jerry-Rigged Budget ‘Framework’ The $1.75 trillion cost is phony, but the social and fiscal damage are real.
Nothing like an artificial political deadline to concentrate the warring liberal minds. Before departing Thursday for next week’s climate gabfest, President Biden declared he has sealed an agreement with Democrats in Congress on a “framework” for a spending bill that he declares will make a “fundamental change in America.”
He’s right about that last bit, but the blueprint the White House released is more frame than work. The jerry-rigged plan is an enormous expansion of government with quarter-baked entitlement programs that will retard work and $1.85 trillion in tax increases that will distort and limit investment. The $1.75 trillion cost that Democrats have assigned their bill is an illusion. They use phony accounting to finance a few years of new spending with 10 years of tax increases.
For example, the plan extends the $3,600 child tax credit for one year at a cost of $110 billion. But Democrats will inevitably extend the credit next year. If Republicans oppose this or try to scale the credit back, they will be attacked for raising taxes on middle-class families. The true 10-year cost is about $1.1 trillion.
The agreement drops the House’s proposed Medicare vision and dental expansion. But it preserves a new hearing benefit, which the White House claims will cost a mere $34 billion and start in 2024. The annual cost of the hearing benefit once fully phased-in is some $16 billion. Congress will invariably make it permanent. True cost: $160 billion.
Democrats also plan to extend ObamaCare subsidies through 2025 for higher earners and broaden them to low-income folks in states that rejected the Medicaid expansion. The White House says this will cost $130 billion, but the Congressional Budget Office has estimated that providing coverage to these folks would cost north of $500 billion over a decade.
These programs are merely illustrative of how Democrats are desperately trying to squeeze a menagerie of spending into their negotiated $1.75 trillion top-line cost, with the real cost likely to be closer to $4 trillion.
At the same time Democrats are inflating the revenue estimates to pay for it. They claim $145 billion in phantom savings from repealing a controversial Trump Medicare drug rebate rule that was unlikely to take effect.
They also claim $400 billion in revenues from $80 billion in IRS “investments”—a 66% budget increase—including to hire more auditors to harass taxpayers. CBO has estimated this would only yield $200 billion in revenue for a net $120 billion.
The $1.85 trillion in tax increases include a 15% minimum tax on book income of large corporations, which will become Swiss cheese after Democrats add carve-outs for progressive interests. Corporations will also be taxed 1% on stock buybacks (which is another way of taxing shareholder dividends). Instead of buying back their shares, companies may hold more earnings in cash or channel them into unproductive investments.
Despite its anti-corporate advertising, the bill represents the biggest expansion of corporate welfare in history. Much of the $555 billion for climate spending will go to businesses for investing in renewables, nuclear, hydrogen, carbon capture, electric vehicles, batteries and transmission lines. This is on top of tens of billions in green-energy handouts in the Senate infrastructure bill.
And don’t believe Mr. Biden’s malarkey that taxes won’t go up for non-millionaires. Small business owners will get slammed by a 3.8% Medicare surcharge on active-investment income. A 5% surtax on income over $10 million and 8% above $25 million will hit the ephemeral rich who experience a windfall, say, after cashing in stock compensation after decades of work.
These surtaxes will raise the top marginal personal income tax rate to 45% or so and around 60% in New York and California, which would be higher than in European welfare states. The top rate in the U.K. is 45%, Italy 47.2%, Germany 47.5% and France is 55.4%. Congrats, Mr. President, you’ve won the tax race to the top.
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The best we can say about this exercise is that it could have been worse. Sens. Kyrsten Sinema and Joe Manchin managed to purge drug price controls, some tax-rate increases, and a renewable energy enforcement measure. Those excisions have progressives upset, and there’s still a chance all of this collapses when the fine print arrives. It would be far better for the country if it does.
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Appeared in the October 29, 2021, print edition.
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