After weeks of telling the public that the Build Back Better plan would cost zero dollars, the Biden administration didn’t appreciate the rude awakening that the Congressional Budget Office brought, with a White House spokesman even going so far as to belittle the CBO’s analysts for not playing along.
Though the CBO’s score fails to account for numerous timing gimmicks, it shows that BBB would add $367 billion to the national debt. Taxpayers should ignore the White House’s protestations and take note that even a bill full of every budget trick in the book couldn’t pass muster.
One reason that the administration hoped for a more favorable score from the CBO is its proposals for more aggressive tax enforcement. The bill boosts the IRS’s budget by $80 billion, which would be used to upgrade IRS technology, which is woefully out of date, and to hire nearly 87,000 new agents and auditors, effectively doubling its workforce. The White House estimates that this would strengthen tax enforcement and raise $400 billion in tax revenues that might otherwise go uncollected.
The CBO, on the other hand, found that tax enforcement would only collect $207 billion and, including these revenues, BBB would add $160 billion to the deficit. Even before the estimate was publicly available, White House deputy press secretary Andrew Bates sought to cast doubt on the validity of the CBO estimate, saying that the “CBO does not have experience analyzing revenue amounts gained” from tax enforcement.
Like any agency tasked with the difficult work of crafting budget estimates, the CBO is not always perfect. Nevertheless, it has worked over the past several years to boost transparency into how it scores legislative proposals, and it has earned a reputation as a straight shooter when it comes to budgetary analysis. The CBO’s greatest failures in budget projection have come when it is constrained by Congress in how it can go about doing its job; fortunately, that has little bearing on this specific issue.
In the case of tax enforcement, CBO reviewed the economic literature and found that not all the experts are as optimistic about the impact of enforcement as those at the Treasury Department. Specifically, some of the analyses it looked at found that the effects get muted over the long run as new tax-minimizing strategies develop. In a September blog post, CBO Director Phillip Swagel also noted that it would take some time for all the IRS agent hires to be trained and effective.
In producing its estimate, the CBO followed standard practice by using the midrange of estimates between the least and most optimistic projections. The Treasury Department, on the other hand, is likely being excessively optimistic.
It is worth remembering that Congress created the CBO in the first place because it didn’t always trust budget estimates and projections provided by the executive branch. Lawmakers had good reason to be suspicious of cost estimates of the president’s proposals that came from the president’s own number crunchers. The creation of the CBO helped strengthen Congress’s role in the budget process by providing nonpartisan analysis.
What makes the White House’s complaints so hollow is that, if anything, the CBO’s score of the BBB underestimated its deficit impact. The law was written with timing tricks so that the most expensive provisions are made temporary. For example, the refundable child tax credit expansion costs $130 billion and expires after one year. If BBB is enacted, there is little doubt lawmakers will push to extend this. The independent Penn Wharton Budget Model finds that the cost of the legislation would double to more than $4 trillion if the temporary programs were made permanent.
Yet, while the spending in BBB largely occurs over the first few years, it relies on 10 years of tax hikes in order to pay for it. Gimmicks like this are why the deficit keeps growing despite politicians’ promises that their plans are fully paid for.
Congress needs to do a better job of ensuring it has access to honest budget numbers as it exercises its power of the purse. It certainly should not be relying upon rosy estimates from a Treasury Department hoping to receive a budget boost.
Demian Brady is the vice president of research at the National Taxpayers Union Foundation, a nonprofit group dedicated to tax policy research and education at all levels of government.
