Gordon L. Weil
The U.S. Senate is lying to you (and possibly to itself). Maybe it’s in a good cause, but it’s still a lie.
The intentional falsehood is that the bipartisan $1 trillion infrastructure bill can be financed without raising taxes.
Its use of smoke and mirrors could help explain why people don’t trust government, an unfortunate sentiment when, at the same time, it’s urging you to get a Covid-19 vaccination.
About half the money for the bill will come from unspent funds previously allocated for coronavirus recovery. But the rest must come from newly identified revenues. The bipartisan backers of the bill have created some funding sources that don’t pass the straight-face test.
When Congress comes up with new spending, it must go to the nonpartisan Congressional Budget Office for a forecast of the effect of the proposal on the economy and the federal budget. The CBO found the infrastructure bill undershot the needed revenues by $256 billion.
That means the Senate compromise failed to provide enough money to pay for its outlays. The result must be an increase in the federal debt, but the bill contains no payments for debt service. The senators have wishfully assumed enough future economic growth to produce tax revenues that would cover the budget gap
Two of the bill’s key sponsors dismissed the CBO’s expert analysis, saying its rules limited it from considering the pie-in-the-sky accounting they use. They simply ignored the fact that Congress had created the CBO to avoid just that kind of speculation. Several other independent reviews had come up with results like the CBO’s.
Why are some of the deal-making senators, a group that includes Maine’s Susan Collins, so willing to promote obvious “budgetary gimmicks” in light of the CBO’s official role in forecasting? Politics.
Donald Trump, hailed for keeping his promises as president, had said he would come up with a $1 trillion infrastructure program, but did nothing. That inaction left Americans increasingly tired of potholes, crumbling bridges, inadequate telecommunications and other weak elements of the physical backbone of the country.
President Joe Biden and the Senate dealmakers said they would do what Trump had promised. It should make Biden and the Democrats more popular. It could help some Republicans meet an urgent public need, possibly putting space between them and Trump, who now opposes the deal, mainly because it helps Biden.
This is a rare case where good policy and good politics exist for both sides and they could make a bipartisan deal.
The main opposition comes from most Senate Republicans. They would accept a smaller bill using only what is already available from unspent funds and limited to items like roads and bridges. That position insulates them from the sham revenue forecast, but falls far short of the need.
The alternative to the unfounded projections of new tax revenues from future economic growth is raising federal revenues. A major new source of funding could have come from getting people to pay income taxes they owe rather than, well, cheating. To do that would require strengthening the IRS.
It would seem difficult to oppose adding federal revenues by collecting taxes already due. That’s not a tax increase, though some taxpayers would pay more. But the Republicans refused to include measures to improve IRS tax collection, confirming the favorable GOP tax treatment of the richest Americans.
Paul Krugman, a Nobel-prize winning economist who’s now a liberal New York Times columnist, approves of using “smoke and mirrors,” because of the critical need, even if that really requires more borrowing. Interest rates are now so low it won’t cost much, he claims. The declining value of the dollar and economic growth will allow future taxpayers easily to cover the cost.
The main problem in justifying the cost is that its advocates rely heavily on their own forecasts of congressional behavior, the economy and tax revenues. Just two years ago, nobody could have forecast the impact of Covid-19 on the national debt. Nor do we know what will happen in 2025 when personal income tax rates are supposed to increase.
Basing budget planning on wishful thinking is not the best way to run a government. But it may be the best way to make people believe, at least for one election cycle, that they can have something for nothing.
In the end, all government spending depends on taxes. Taxpayers ultimately pay for debt. But the U.S. now has an almost religious dislike of tax increases, even on the most wealthy. Yet that’s just what’s required – now or later.
Even if it’s later, it will be a big bill. As the late Everett Dirksen, the GOP Senate leader, once supposedly quipped, “A billion here, a billion there and pretty soon you’re talking real money.”
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