This week is expected to be a defining one for the Biden agenda, bookended by the bipartisan infrastructure bill signing on Monday and the long-anticipated Congressional Budget Office score of the Build Back Better Act due on Friday. The CBO score is the contingency upon which the five conservative Democratic holdouts in the House have conditioned their support for the $1.85 billion package.
Already, that CBO score seems to be hitting a long-prophesied snag. In its insistence that the entirety of the legislation be paid for, the White House has assumed $400 billion in savings from tax enforcement over the ten-year budget period, based on an $80 billion allocation to the Internal Revenue Service to go after tax cheats. Its an essential revenue-raiser, and one of the only meaningful tax changes for the ultra-rich, as everything from closing the carried interest loophole to ending step-up in basis to taxing wealth has fallen out of the bill. Rich people love cheating on their taxes, though, so stronger IRS enforcement is still consequential, and difficult for lobbyists to justify opposing.
But there are a number of problems emanating from the CBO itself. As The New York Times reported on Monday, the office is expected to forecast that the beefed-up IRS will bring in only $120 billion in the budget window, a far cry from the White House estimates. But its not clear how it would arrive at even that figure. Thats because the CBO, by rule, is not allowed to say that investing money in the IRS will result in the secondary effect of better tax collection. Under budget guidelines set by Congress and the White House, the nonpartisan organization is precluded from counting money that will be spent on enforcement as increasing revenue, even when, as in this case, the allocation to the IRS would indeed be a revenue-raiser.
Congress is incentivized to gut the IRS (and every other enforcement agency) because, by rule, cutting spending is the only way to realize budget savings.
In general terms, that means that Congress is incentivized to gut the IRS (and every other enforcement agency) because, by rule, cutting spending is the only way to realize budget savings. In this specific case, it means that the CBO is prevented from making an accurate assessment of the cost of the Build Back Better Act, which may result in the whole legislation being scrapped.
According to Andrew Grossman, chief tax counsel for the Democratic majority on the House Ways and Means Committee, the low number being telegraphed by the CBO has long been expected, and is a smaller hurdle than the arcane rules of scoring, as that increased funding is not technically scoreable. I would expect that footnote and that number for tax revenue to be less than what the White House and the Treasury Department have said, Grossman told state tax collectors at an event in Virginia, as Bloomberg reported.
Like any random procedural rule, Congress and/or the executive branch could simply change it. As Scott Levy explained in The Yale Law Journal, Congress could pass a resolution changing the way CBO does its scoring, or they could even insert the change in a conference report. Doing so would result in even less administrative upheaval than other procedural obstacles that Democrats could simply remove from the path to enacting their agenda, like firing or overruling the Senate parliamentarian.
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But so far, Democrats have withered in the face of those bureaucratic resistances. And for the group of conservative House members, well-known in their cynicism, the bad score could be more than reason enough for the whole BBB to go the way of the $15 minimum wage and immigration reform. Being thwarted by unelected bureaucrats and procedural norms that no one has even heard of has become an enduring part of the Biden Democratic Party experience.
As it stands now, the White House is merely crossing its fingers that the Democratic holdouts will take pity on an uncharitable report. In this one case, I think weve made a very strong empirical case for C.B.O. not having an accurate score, Ben Harris, Treasurys assistant secretary for economic policy, told The New York Times on Monday. The question is would they rather go with C.B.O. knowing C.B.O. is wrong, or would they want to target the best information they could possibly have?
Of course, theres little reason to expect those five House holdouts and Joe Manchin to opt for option two. Budget scoring has become a persistent weapon, cherry-picked for political and ideological ends. The holdouts all enthusiastically supported the bipartisan infrastructure bill despite the fact that the CBO asserted that it was not remotely paid for via outside revenue-raisers; when questioned, that gap was merely hand-waved away. But the BBB, which was not written for and by corporate lobbyists, has these same politicians very worried about those discrepancies, and terrified of inflation, despite the fact that the bill has been written explicitly to tackle the most inflationary aspects of American life. Prescription drug prices, housing, education, child care are all pressing, high-priced realities for American workers, families, and students that the bill tackles head-on.
Thats not to suggest that the CBO score would be accurate even if the rules were changed. Currently led by Phillip Swagel, who is spearheading the assessment of how much money an enhanced IRS could credibly raise, the CBO has been famously and flagrantly incorrect in nearly all of its major markups in recent years. Thats in part because its job is impossible; isolating the budget impact in year ten of a comprehensive, complex piece of legislation like Build Back Better is like sinking 18 straight holes in one at the Masters.
However, it should be noted that, despite running a putatively nonpartisan entity, Swagel is a Republican, a former staffer and resident scholar of the American Enterprise Institute, and a graduate of the University of Chicagos Booth Business School. He was also a Henry Paulson recruit in the Treasury Department under George W. Bush, where he worked in tandem with aide Neel Kashkari to draft the early parts of the 2008 bank bailout and the proposal that became the Troubled Asset Relief Program, which became perhaps the most ignominious and scandal-plagued component of the response to the 2008 financial crisis. He later worked for Bushs Council of Economic Advisers.
Democrats in Congress could replace Swagel, but they have shown an unwillingness to issue pink slips to high-profile opponents of their agenda, be they parliamentarians or CBO directors. Still, the crisis now being forecast for later this week can be easily circumvented with a rule change. And if Democrats cant manage to pass one, theyll have only themselves to blame for the collapse of the bill that Nancy Pelosi has called her legacy, that Joe Biden has staked his campaign slogan on, and that nearly all Democrats have run on, in some way, for the last six to 16 years.
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