The Biden administration has proposed trillions of dollars of new spending and tax increases. But these plans have contained little or no budget details, and the White House has used budget sleight of hand to hide the true costs involved.
In releasing its plans, the White House has ignored standard budgeting conventions and used an accounting gimmick to make the proposed spending look smaller and the proposed tax revenue look larger.
The first budget gimmick is to provide a cost estimate for the administration’s infrastructure plan, the American Jobs Plan, for only eight years, instead of the standard budget convention of 10 years. The White House Fact Sheet (March 31, 2021) states that the plan will “invest about $2 trillion this decade.” But White House officials have admitted that this $2 trillion number is imprecise. The real spending is closer to $2.4 trillion, and that number does not include more than $400 billion in new tax credits for various programs, making the real eight-year number $2.8 trillion. Over 10 years, the true cost of the plan would be at least $3.5 trillion, nearly double the original estimate.
The second budget gimmick comes in the form of an estimate of the revenue raised over 15 years, not the conventional 10 years. This ruse allows the White House to overestimate the amount of money coming in so that it can then claim the proposed tax increases cover the cost of its proposed spending. But that is not the case. The corporate tax increases would raise an estimated $2.5 trillion over 15 years, according to the Treasury. This works out to about $1.7 trillion over 10 years, which means that only about half of the $3.5 trillion to be spent over the same 10 years would be covered.
In sum, the White House accounting gimmickry is hiding the actual cost of its spending plans, overestimating the tax revenue coming in to pay for the spending, and obscuring the plan’s actual impact on the budget. Every journalist covering this issue has either missed this budget gamesmanship or is in on the ruse and has neglected to point it out.
The real projected cost of the three Biden spending plans is at least $7.2 trillion over the next 10 years. Less than half of this spending is covered by the proposed tax increases. And the White House has not released the projected cost estimates for the increased interest costs from the higher deficits, a number that is likely hundreds of billions of dollars.
Why should you care?
Well, because the $7 trillion-plus in new spending is about one-third the size of the entire U.S. economy. It is nearly double the amount of money spent by the entire government in 2019. These plans should be debated on their merits using accurate budget projections and estimates. The last thing we should do is consider massive spending and tax proposals using accounting tricks and incomplete budget numbers to hide their true impact.
Bruce Thompson was assistant secretary of Treasury for Legislative Affairs during the Reagan administration and director of government relations for Merrill Lynch for 22 years.
