Uh oh: CBO to rule that Biden's reconciliation package isn't fully paid for?

AP Photo/Andrew Harnik

Silver lining for House Dems: Joe Manchin was going to tear this bill up anyway so it’s not like they’re losing something meaningful.

But it’ll be highly embarrassing if they can’t come up with a plan, spearheaded by the president himself, that’s capable of passing their own chamber.

Take two minutes to watch Dem Rep. Josh Gottheimer, the leader of the centrist wing in the House, discussing what he wanted from the House bill a week ago. We need it scored by CBO, he told CNN, and we expect that the numbers we were given by the White House will match up with CBO’s findings. More than anything, Gottheimer wanted the bill to be paid for. He expected no increase to the deficit if it were enacted into law. (Which, again, it won’t be.)

Joe Biden has spent weeks insisting that his Build Back Better reconciliation package will cost “nothing” because all of the bill’s costs are covered by tax revenue. No new taxes on the middle class, no new borrowing needed to make up any shortfalls. It’s paid for! Which, in Biden-speak, translates into “it costs nothing.”

But what if it doesn’t “cost nothing” after all?

President Biden’s pledge to fully pay for his $1.85 trillion social policy and climate spending package depends in large part on having a beefed-up Internal Revenue Service crack down on tax evaders, which the White House says will raise hundreds of billions of dollars in revenue.

But the director of the nonpartisan Congressional Budget Office said on Monday that the I.R.S. proposal would yield far less than what the White House was counting on to help pay for its bill — about $120 billion over a decade versus the $400 billion that the administration is counting on

The White House has begun bracing lawmakers for a disappointing estimate from the budget office, which is likely to find that the cost of the overall package will not be fully paid for with new tax revenue over the coming decade. Senior administration officials are urging lawmakers to disregard the budget office assessment, saying it is being overly conservative in its calculations, failing to properly credit the return on investment of additional I.R.S. resources and overlooking the deterrent effects that a more aggressive tax collection agency would have on tax cheats.

“CBO doesn’t know what it’s talking about” feels like a bad pitch to centrists like Gottheimer who refused to vote on the bill — again, a bill that won’t even pass the Senate — until CBO had ruled. Centrist Dems might be willing to help their progressive colleagues by casting an ultimately meaningless vote for BBB to give them cover on the left, even knowing that Republicans will attack them for it in the general election, so long as they can tell angry swing voters (1) hey, the bill didn’t become law, did it? and (2) the bill was fully paid for. It didn’t add to the deficit.

Except, according to CBO, it would add to the deficit. Biden’s idea is that if we spend a bunch more money on the IRS, that “investment” will be repaid many times over by the additional tax revenue recovered from people who’d otherwise cheat the system. The more IRS agents there are to hold rich people upside down and shake them until the coins they’re hiding in their pockets fall out, the more money there’ll be in America’s coffers. A few days ago the commissioner of the IRS endorsed that proposal for more agency funding, claiming that his office is miserably understaffed:

Suggestions that the agency may not be fully capable of efficiently using these funds ignore the fact that the IRS workforce is the same size as in 1970, though the population has grown by 60 percent and the complexity of the economy has increased exponentially. And they ignore the ever-growing set of responsibilities — such as the distribution of pandemic-related stimulus payments — that the IRS is required to carry out.

The status quo is untenable: It’s frustrating to taxpayers, it’s frustrating to our employees and it’s frustrating to me. Today, we have fewer than 15,000 people to handle more than 240 million calls received in the first half of this year alone. We have fewer auditors than at any time since World War II. Dozens of the assistance centers across the country that provide face-to-face service sit empty because we don’t have the resources to hire staff. Many of these are located in vulnerable, underserved areas, which I passionately believe need help.

More IRS enforcement = fewer tax cheats = more tax revenue = enough new money that Build Back Better is paid for. CBO agrees with the first three steps of that equation, it seems, but not the fourth. A beefier IRS will reduce the amount of tax cheating and produce more revenue, just not quite enough new revenue to make the BBB books balance. Rich people are good at hiding their money, after all. They pay top dollar to lawyers and accountants to find tax shelters that place their wealth beyond the reach of the IRS. “The C.B.O. tends to believe that the tax collection prowess of more enforcement agents will wane over time, while the White House assumes that taxpayers will become more compliant with the I.R.S. when they see tax dodgers facing consequences,” the Times reports, highlighting the White House’s naivete. Imagine America’s wealth management specialists just throwing in the towel and encouraging their clients to pay up to Uncle Sam because the IRS hired a bunch of new agents.

I don’t know tax law well but I’m generally acquainted with human behavior and reluctantly face the hard reality that major legislation is never, ever fully paid for. Gottheimer and his moderates have every reason to trust that CBO is right that the additional revenue from IRS enforcement will decline over time as tax specialists devise new strategies to shield rich people’s money. But which way does it cut that the House bill is DOA in the Senate? Is that an argument for the centrists to walk away, citing the CBO score, or is it in argument for them to vote yes anyway since they can trust Joe Manchin to get out his scissors and trim once the bill makes it over there? We’ll know soon.