House Democrats’ budget reconciliation bill could increase federal deficits by roughly $200 billion over 10 years, falling short of lawmakers’ ambitions to fully pay for the climate and social spending package, a nonpartisan budget watchdog group said Monday.
The Committee for a Responsible Federal Budget said in an analysis that House Democrats’ latest version of the bill includes $2.4 trillion in spending and tax expenditures but only $2.2 trillion in offsets.
The group counts Democrats’ proposal to raise the current $10,000 cap on state and local tax deductions to $80,000 through 2030, with a brief snapback to $10,000 in 2031, as both an expenditure and an offset. The provision would cost $285 billion through 2025, when the current $10,000 cap is set to expire, and raise $300 billion after that, resulting in a net $15 billion in revenue, according to CRFB’s numbers.
That’s consistent with Democrats’ estimates that the SALT provision would raise $14 billion over 10 years, in a deliberate attempt to make the increased cap pay for itself over time.
The CRFB said that the revenue increase from the SALT changes come when measured against current law and that’s what they included in their tally. But they note the cap increase “would substantially increase the cost of extending” other individual provisions in the 2017 GOP tax law that are set to expire after 2025 “and thus is likely to result in lower revenue collections over time.”
When SALT is not factored into CRFB’s numbers, the toplines of $2.1 trillion in spending and tax expenditures and $1.9 trillion in revenue offsets are closer to a Nov. 4 preliminary estimate from the White House. The administration’s estimate tallied the gross cost of the package around $2 trillion and said it would be more than fully paid for with tax increases, enhanced tax enforcement and health savings.
Tax enforcement difference
However, the offsets still fall $200 billion short in CRFB’s numbers because the White House is expecting much larger gains from the $80 billion in mandatory funding the bill would provide to the IRS to improve tax enforcement.
The White House has estimated the increased IRS funding would net $400 billion in revenue, but CRFB says it’s likely to be less than one-third of that total.
“Based on recent CBO estimates, we believe the legislation will generate roughly $125 billion on net from improving tax compliance,” the group said in its analysis.
House Ways and Means Chairman Richard E. Neal said last week the White House estimate of $480 billion in gross revenue, which nets $400 billion after the $80 billion in increased spending for the IRS is factored in, is “realistic.”
The Massachusetts Democrat said he expects IRS Commissioner Charles P. Rettig, who has floated even higher revenue estimates from enhanced tax enforcement, to explain to the CBO what his agency can do with the mandatory funding that will produce higher revenues.
"I think he's going to weigh in and I think that will be very helpful," Neal said.
While the CRFB deviates from the White House on tax enforcement revenue, it uses other White House estimates in its analysis. For example, it counts $250 billion the White House said it expects to raise from prescription drug savings, including by allowing Medicare to negotiate lower costs for certain older drugs that have been on the market for years.
The group also uses the White House cost estimate of $100 billion for immigration provisions in the bill, while acknowledging “the actual cost is unknown, and the structure may change in the Senate.”
The CRFB acknowledges the actual deficit impact of the package “is likely to be somewhat lower” than the $200 billion it estimated if the cost of the immigration provisions are overstated and some of the budget authority provided in the 10-year budget window is not spent until 2032 or later.
“On the other hand, the legislation relies too heavily on arbitrary expirations to keep reported costs down,” the group wrote. “Making all provisions permanent would cost $2 trillion to $2.5 trillion over a decade. Whether these contribute to the debt depends on the existence or absence of future offsets.”
Risking moderates' support
The White House felt confident enough in its preliminary estimate of the package to make that part of a deal House progressives and moderates struck late Friday.
Five moderate Democrats who prevented the House from voting on the budget reconciliation package Friday because they wanted to see official CBO estimates said they will vote for the bill if the eventual CBO numbers are “consistent with the toplines for revenues and investments” in the White House estimate.
The statement from Reps. Ed Case of Hawaii, Josh Gottheimer of New Jersey, Stephanie Murphy of Florida, Kathleen Rice of New York and Kurt Schrader of Oregon said they “remain committed to working to resolve any discrepancies” in the budget estimates.
If the CRFB’s estimates align with the numbers the CBO produces, the moderates will have an escape hatch for their pledge. But only if the CBO works quickly. The five promised they’d support the package as soon as they get the CBO numbers “but in no event later than the week of November 15th.”
President Joe Biden, who worked the phones with moderates and progressives as they brokered the deal, also promised to find enough revenue to make up the difference if CBO says the offsets are short of the spending, according to Rep. Jimmy Gomez, a progressive involved in the negotiations.
"The president agreed … that if there's not enough revenue, he'll find the revenue to make it up," the California Democrat said.
Gomez said the progressives and moderates carefully crafted every word of the statement, with progressives adding “toplines” to ensure that the CBO’s numbers do not need to match every line item in the White House analysis. The agreement was just that overall spending and revenue must match to prove the package is paid for as the White House has promised.
“Basically, it has to balance," he said.
CBO is expected to produce its estimates by Nov. 15 if there are no more changes to the package, Gomez said. But the progressives sought to add the line to the moderates’ statement that they’d vote for the measure that week regardless so that moderates didn’t push for further changes to delay the score, he said.
Gottheimer, one of the five moderates who negotiated the deal with progressives, said Sunday he expected to see a CBO cost estimate next week that aligns with White House numbers.
"We plan to move forward because it's going to meet our expectations, I'm sure," Gottheimer said on CNN's "State of the Union" program. "What's most important … is that this bill is fiscally responsible and paid for."
Neal said the CBO score could potentially show even more deficit savings than the White House’s estimates.
"I actually think you might be looking at a bit more revenue,” he said. “Once we get the chance to sort the prescription drug savings and once we get to take a look at the IRS projections … we might have a little bit more room at the edges."
David Lerman contributed to this report.