Fiscal Gimmickry: The Build Back Better Act — Gary Sasse
Gary Sasse, Guest MINDSETTER™
Fiscal Gimmickry: The Build Back Better Act — Gary Sasse
Most American families are likely to be impacted by something contained within this $2 trillion legislation. In a nutshell, the Build Back Better Act establishes universal preschool and expanded access to pre-K education, caps child care costs, provides for parental, sick and caregiver paid leave, bolsters support for affordable housing, limits the cost of certain drugs, expands Pell Grants, expands child tax credits, brings us closer to universal health care, and invests in climate change programs.
The cost of the Build Back Better Act is predicated on budgetary gimmicks, and its real cost may be over two times greater than the approximately $2 trillion budgeted. The Penn Wharton Budget Model estimates that the House bill will cost about $4.5 trillion over ten years if, as anticipated, the temporary entitlements are made permanent
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTLet’s take a quick look at some of the budget gimmicks, and how the House leadership camouflaged the real cost of Build Back Better.
The enhanced child tax credit of $3,600 for children under age six, and $3,000 for kids up to age seventeen is only extended through 2022. Likewise, the Earned Income Tax Credit expansion is also only for one year. There is no policy justification for these time limits other than the appearance of lower projected ten-year deficits. Maya MacGuineas, president of CRFB said, “More troubling than the ten-year deficit increase is the use of expirations and arbitrary sunsets to reduce reported costs. As written the legislation would add about $750 billion to the deficit over five years due to its front-loaded nature, and this would create immense pressure for future extensions.” Making the non-permanent parts of the Build Back Better agenda permanent could add $3 trillion to the debt. Does anyone believe that once an entitlement is established it can be taken away?
The Build Back Better Act also plays a “bait and switch game” with state governments on some of the legislation’s initiatives. According to the Wall Street Journal, states will be required to finance five percent of the child care entitlement from 2025 to 2027. For universal pre-K mandates states would be obligated for about five percent of the costs starting in 2025 and 37 percent in 2027.
The Build Back Better Act is focused on creating fair and equitable ways to finance social programs, but it sends mixed tax equity signals. The legislation is largely financed by raising taxes on high-income earners, corporations, and enhanced IRS enforcement of tax laws. The Act would impose a fifteen percent minimum tax on the profits of large corporations, a one percent corporate stock buyback tax, limitations on interest expense deductions, a surcharge on the income of wealthy individuals, and green energy incentives for producers and purchasers to speed up the transition away from fossil fuels.
It is ironic that the legislation also includes a substantial tax cut for wealthy taxpayers. Build Back Better would increase the amount of state and local taxes (SALT) that can be deducted on federal income tax returns from $10,000 to $80,000 through 2031. The Tax Policy Center says that this tax change will benefit primarily the top 10 percent of income earners, with almost no benefit to middle- and lower income families. The Tax Policy Center also found that “two-thirds of households making over $1 million per year would receive a tax cut under the Build Back Better Act.”
The ball is in the United States Senate’s court to enact a fiscally responsible Build Back Better Act. Legislation that does not add to the deficit, eliminates arbitrary end-dates for continuing programs, adheres to the principles of tax fairness, and realistically measures the impact of federal spending on long-term inflation.
Gary Sasse is the Director of the Hassenfeld Institute for Public Leadership at Bryant University.