Infrastructure bill heads for final Senate vote, amid warnings from CBO and deficit hawks

The $1.2 trillion bipartisan infrastructure bill is working its way through the House and Senate in unison—with a final Senate vote expected Tuesday—along with a more contentious $3.5 trillion spending package pushed by Democrats, who say they won’t pass one without the other. 

The creators of both plans claim that the increase in spending will be paid for by stimulating long-term growth, a controversial notion. They also claim that they’ll be able to fund the drastic increases by rooting out various aspects of “fraud” in unemployment insurance and beefed up tax collection enforcement, respectively. Critics counter that those actions are speculative gimmicks and are unlikely to provide anywhere near the level of funding promised. 

The $1.2 trillion bipartisan infrastructure bill, which is expected to be voted on in the Senate Tuesday morning, will be paid for by redirecting $250 billion in COVID-19 relief funds, including $50 billion intended for federal unemployment relief that was eschewed by some Republican governors and by gaining $30 billion from strengthening tax reporting requirements and enforcement for cryptocurrency.

But estimates of unused COVID relief are far too high, says Congressman Ro Khanna (D-Calif.). “The reality is we shouldn’t rely on gimmicks to fund things,” he told Coins2Day. “The path is very clear. We need to have corporations and the ultrarich pay more in taxes and use those mechanisms for revenue raising.”

An initial analysis by the Congressional Budget Office found that the bipartisan bill would add more than $250 billion to the federal deficit over the next decade. The CBO noted that over half the new spending introduced by the plan would be financed by adding to the debt, which contradicts claims that the bill will pay for itself. 

Another analysis by the University of Pennsylvania’s Penn Wharton Budget Model found that the proposal would have no significant effect on GDP by the end of the budget window in 2031 or, in the long run, by 2050. 

Fiscal hawk group, Committee for a Responsible Federal Budget, found that redirecting funds and limiting fraud wouldn’t deliver anywhere near as much money as Republicans and Democrats say it would. 

The nonpartisan group said that some of these reported offsets come from counted savings that have already occurred. “This includes $53 billion from expanded unemployment benefits costing less than originally scored, $67 billion from counting sales of digital spectrum that have already occurred, and roughly $155 billion out of the $205 billion of claimed savings from repurposing unspent COVID funds.”

Likewise, economists warn that tightening tax loopholes and increasing the IRS enforcement budget, which Democrats say will offset the costs of their proposed $3.5 trillion measure to expand Medicare and other social programs, is highly optimistic. 

Last year, the CBO estimated that Congress could collect about $61 billion more in taxes over the next decade by giving the IRS an additional $20 billion. The Penn Wharton model found that if the Biden administration boosted the IRS budget by its proposed $80 billion, it could collect $480 billion more in revenue. The Democrats’ plan said the IRS would collect an additional $779 billion.

Both plans also purport to save money by repealing Trump administration regulations on drug rebates. The CBO estimates those regulations would cost $177 billion over a decade, but they were never actually implemented. Canceling them would be the equivalent of deciding to return an item and then using that money as “savings” to spend on something else. 

Many Republicans, meanwhile, argue that the $3.5 trillion resolution, which could be passed with a simple majority through a process called budget reconciliation, is too pricey to implement while showing support for the $1.2 trillion plan. 

“I love this bill; the other I can’t stand,” said Sen. Mitt Romney on the difference between the two packages. He cited concerns about inflation with the larger bill. 

In reality, a vote for any of the bills goes against the warnings of the fiscal conservatives that Republicans and Democrats long paid heed to, and signals a death knell for the long declining golden age of the deficit hawk. Democrats and Republicans are both pushing ahead with the bipartisan infrastructure bill, and it will likely pass on Tuesday, in spite of the CBO warning. 

So far this fiscal year, the federal government has run a deficit of $2.2 trillion, bringing in $3.1 trillion in revenue and spending $5.3 trillion. That’s nearly triple the shortfall over the same period in 2019, before COVID-19. 

The Democratic $3.5 trillion bill, meanwhile, sidesteps the impending need to raise the debt ceiling, which will set up a showdown between Republicans and Democrats over the debt when they return from their August recess. 

In 2019, Congress suspended the debt ceiling, the legislative limit on the amount of money that the federal government can borrow, through July 31, 2021. The limit reset on Aug. 1 to the total amount of debt outstanding on that day, about $28.5 trillion. The U.S. Has an estimated $450 billion cash cushion and will be able to avoid talks until the fall, but the Treasury is warning that the federal government could run out of funds in the early fall. 

The debate over the debt ceiling has become a key bargaining chip for Republicans who have used it to limit other spending instead of just passing through a clean increase. 

The Democratic majority has already indicated that it has no intentions of limiting spending or negotiating over the ceiling. “We don’t negotiate on the debt ceiling,” said Sen. Chris Murphy of Connecticut. But even Republicans aren’t sure that they’ll fight hard for spending reform this time around. 

When asked if other Republicans would be unbending in their demand for spending reform during a debt ceiling debate, staunch fiscal hawk Sen. Rand Paul had a quick retort, “I doubt it.”