The Infrastructure ‘Pay-Fors’ That Aren’t The bipartisan deal is full of phantom revenue gimmicks.
West Virginia Democrat Joe Manchin and his Senate Republican friends are stressing that their infrastructure deal is “fully paid for.” Read their lips: No new deficit spending. Read their bill: It relies to a great degree on savings and revenue already baked into the fisc or that are unlikely to happen.
Deficit financing is better than increasing taxes, and Republicans at least jettisoned the taxes (until Democrats raise them in their budget reconciliation bill). They also deep-sixed President Biden’s plan to give the IRS $40 billion to harass small businesses, which Democrats claimed would raise hundreds of billions of dollars in new revenue. Their IRS stimulus was dubious, but so are most of the bill’s remaining offsets.
Start with using 10 years of savings from various programs to offset five years of spending. This includes extending by a decade a guarantee fee that government-sponsored enterprises Fannie Mae and Freddie Mac charge on mortgages they back.
Congress imposed the 10-basis point fee in 2011 to cover the cost of the government backstop on Fan and Fred. Extending the fee through 2032 is expected to raise $21 billion, but the taxpayer costs will be far greater if the housing giants start to lose money again after the Biden Administration takes steps to ease underwriting standards.
Then there’s magical Medicare accounting. The bill would extend Medicare provider payment cuts by a year through 2031, just inside the 10-year budget window. Senators are counting that as saving $9 billion, but Congress is almost certain to override this provision once hospitals squawk, as they surely will.
Senators are also counting savings from suspending a Trump Medicare anti-kickback rule through 2025. The rule bans most rebates that drug makers pay to Medicare Part D pharmaceutical benefit managers to get on plan formularies and thus would have the effect of increasing seniors’ premiums and government spending.
A federal judge this year ordered the rule’s effective date to be delayed by a year to January 2023 while the Biden Administration reviews it. Congress never “paid for” the rule. Nonetheless, Congress now plans to pocket savings from delaying its implementation even though it was never likely to take effect. This is a Washington classic that the Senators claim will save $49 billion.
The bill also claims $53 billion from lower spending on unemployment benefits. Unemployment has fallen faster than the Congressional Budget Office projected in March, and 26 mostly Republican states are cutting the $300 federal unemployment bonus early. The savings, if they happen, will come from money that would never have been spent thanks to better policies by conservative states.
Senators had originally proposed to pay for some of the deal with $205 billion from repurposed Covid relief funds. But Democrats refused to reallocate any of the hundreds of billions of the unspent money for states and schools in their pandemic spending bills. In the end, Senators could only agree to repurpose $43 billion, mostly from small business programs with leftover funds.
Senators are also claiming political credit for saving money with private-public partnerships, though they don’t offset the spending and make up a tiny share of the bill. For instance, broadband providers would be allowed to float tax-exempt “private activity” bonds to expand their networks in rural areas. But the bill separately appropriates $42 billion for state and local governments to build out broadband. Why float a bond to invest in broadband if governments will be your competition?
The bill includes some other notional pay-fors like selling oil in the Strategic Petroleum Reserve, projecting future broadband spectrum sales, and requiring manufacturers of single-dose pill containers to provide Medicare refunds for discarded drugs. By the way, CBO is obliged to score many of these as savings under current budget rules, much as it scored the federal takeover of student loans as a money-maker to finance ObamaCare in 2010. Our job is to explain the fiscal reality.
Mr. Manchin insisted again on Sunday that “our infrastructure bill is all paid for.” Only under fictional Beltway scoring. Most Americans no doubt wish they could use Congress’s accounting rules when balancing their household books. We hate to be spoilsports amid the bipartisan bonhomie. But in this bill as usual in Washington, politicians will spend now, and taxpayers will pay later.
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