Graeme Sloan/Sipa USA via AP Images
Sen. Joe Manchin (D-WV) speaks with reporters during a news conference on Capitol Hill, on November 1, 2021, in Washington.
When Sen. Joe Manchin lamented the “shell games” and “budget gimmicks” in the Build Back Better Act on Monday, he was basing his view on an analysis from the Penn Wharton Budget Center, which supplies its own approximations of the budgetary effects of policies, separate and independent from any official score from the Congressional Budget Office or the Joint Committee on Taxation.
But Manchin has ignored Penn Wharton’s analysis of the bipartisan infrastructure bill that he helped broker, which shows a far greater level of, well, shell games and budget gimmicks.
Build Back Better has gone through several changes in the past week, including a new prescription drug pricing reform measure, relaxation of the cap on the state and local tax (SALT) deduction, an overhaul of proposed immigration changes, and several other smaller tweaks. The Penn Wharton analysis, while differing from the White House and official scorekeepers, gets to near budget neutrality when the new elements are factored in.
By contrast, Penn Wharton’s analysis of the bipartisan infrastructure bill from August says that it would add $351 billion to the deficit, on only $548 billion in new spending. In other words, 64 percent of the spending in that bill is not offset. Wharton in particular calls out using $258 billion in “unused” COVID relief and unemployment funds as a pay-for, when those funds were otherwise going to be returned to the Treasury.
Budget analyses like this are almost always outdated and somewhat irrelevant, but they carry enormous weight on Capitol Hill. Manchin’s selective use of these analyses show how they are often wielded for political and ideological ends. In budget politics, there’s no such thing as a neutral arbiter.
Wharton’s appeal derives from its typical role as a first mover on legislation; it offers quick numbers that anyone can point to as a facsimile of an estimate before other organizations get going. Its Twitter handle, @BudgetModel, carries the conceit that there’s only one modeling organization out there.
Budget analyses like this are almost always outdated and somewhat irrelevant, but they carry enormous weight on Capitol Hill.
But Wharton can at times model bills in a somewhat haphazard way. The Roosevelt Institute’s Mark Paul has outlined some problems with its Build Back Better analysis, including how it assumes that taxes on the wealthy reduce investment (they don’t), and that modest transfers to low-income people and other public spending will crowd out private capital (also no). But one particular element of this modeling has had an outsized, and inaccurate, political impact.
For the Build Back Better Act, Penn Wharton has consistently presumed that all of the temporary, time-limited programs on the spending side will be extended fully, and then projects their costs forward through the ten-year budget window. This is how it estimates that a $1.75 trillion package would actually cost $4.262 trillion.
Manchin has seized on this analysis to intimate that Build Back Better is a budget-busting nightmare.
But this is a highly unorthodox way to judge legislation, especially given a Congress that needs to be insistently pushed and prodded to do almost anything. It also assumes that Congress would not add revenue to offset the extension of any of the programs, which under PAYGO rules it would be required to do.
When pressed to offer an analysis of the actual text of the legislation, Penn Wharton arrived on Thursday at a spending figure of $1.87 trillion. This is in line with the House numbers.
While Wharton’s revenue estimates differ sharply from the White House’s Office of Management and Budget (OMB) and the Joint Committee on Taxation—with a difference of about $450 billion—new changes to the bill should induce Wharton to approach the $1.87 trillion level on the revenue side.
For example, Wharton has already estimated the effects of the changes to the SALT cap. While initially, the House favored a short-term suspension of the SALT cap, which limits the deduction for state and local taxes households can take to $10,000, they settled instead on raising the cap to $72,000. The cap was set to expire after 2025, so this adds a limitation in those later years. Penn Wharton approximated that this would raise $28 billion relative to current law.
The Joint Committee on Taxation’s just-released figures on Build Back Better, which don’t include prescription drug pricing changes (which are not tax measures) or IRS enforcement (which JCT is weirdly barred by rule from scoring), estimates $1.476 trillion in revenues from the bill. Drug pricing reform savings, at what the White House puts at $250 billion, and IRS enforcement offsets, which run anywhere from $190 billion (Penn Wharton’s estimate) to $400 billion (the White House’s), would get you well above the $1.87 trillion spending figure; a Treasury Department preliminary estimate pegged it at $2.15 trillion.
Even using the most conservative Wharton revenue estimate of Build Back Better, the bipartisan infrastructure bill would raise the deficit by $150 billion.
Even Wharton’s more modest numbers would likely get pretty close, if they added SALT and the prescription drug changes. But in their Thursday analysis, they simply didn’t include them. Penn Wharton spokesperson Kody Carmody told the Prospect that their analysis was of the White House’s Build Back Better framework, not the House bill. Penn Wharton’s concession that they released an outdated analysis of the bill without all of its elements included has not stopped media outlets from running with it as though it were accurate.
The larger point is, whether you think this is a good or bad thing, the Build Back Better Act costs out, unless you put it through a funhouse mirror where you assume the unlikely scenario that everything in it will stick around forever, and with no subsequent funding to cover the costs. That’s in stark contrast to the bipartisan infrastructure bill, which by every estimate, including Penn Wharton’s, will necessitate the borrowing of hundreds of billions of dollars. Even using the most conservative Wharton revenue estimate of Build Back Better, the bipartisan infrastructure bill would raise the deficit by $150 billion.
From a macroeconomic standpoint, that’s fine or even preferred, given low borrowing costs today. But it’s allegedly anathema to Joe Manchin, who reportedly gets a readout of the national debt and deficit from a staffer every day. Manchin has never fully commented on the budget-busting nature of the infrastructure bill, based on the analysis of his favorite economic modeler. He has cherry-picked a somewhat tortured analysis of Penn Wharton, however, to cast doubt on the Build Back Better Act.
The difference, of course, is that Manchin supports the bill that busts the deficit, and doesn’t support the one that doesn’t.
Asked about the Congressional Budget Office’s analysis of the infrastructure bill, which shows $250 billion in deficits, Manchin said, “I think that’ll all work itself out … The economic impact of that is going to be tremendous.” (For the record, Penn Wharton estimated no change in gross domestic product from the infrastructure bill over the next 30 years.) He has declined to employ this generous perspective when talking about Build Back Better, which other analysts have said would create millions of jobs annually.
Manchin’s office did not respond to a request for comment.
