November 08, 2021
Los Angeles Times
Democrats on Friday scored a win for President Biden’s $1 trillion infrastructure bill. Now focus is turning to the broader Build Back Better Act, his proposal to expand access to medical care, child care, preschool and much more.
Unfortunately, detractors are throwing around so many distortions that it’s hard to keep track of what’s actually in the legislation, also known as the budget reconciliation bill.
Sen. Joe Manchin, the Democratic swing vote from West Virginia, is a good starting point for straightening out some of the misconceptions. Perhaps more than any other person in this world, he will determine how much Americans’ lives will change over the decade ahead.
He has opposed expanding social programs, and although his stated beliefs on the most important economic issues involved in this historic legislation are shared by millions of Americans, not many economists would agree.
Manchin warns of “negative consequences for the future” from the federal government spending “trillions upon trillions,” when the national debt is already at “$28.7 trillion and growing.” In its original form, Biden’s bill was estimated to cost $3.5 trillion. The current version, due in large part to his opposition, has now been pushed down to about $1.85 trillion.
These numbers can sound big and scary when presented without any context – and as Manchin and others present them, without even a time period. The $3.5 trillion, which appears to be one of the only facts that most of the public knows about this bill, would have been spent over a 10-year period. It amounts to less than 1.2% of our economy over the next 10 years. The current version of the bill is about 0.6% of our economy.
Also, the legislation contains revenue increases that pay for the increased spending — including from higher taxes, but not on anyone making less than $400,000 a year (more than 98% of U.S. households). These sources of revenue are being fought over right now, but some mix will win out, and there’s no plausible outcome that is going to make a substantial difference in our national debt.
Not that our national debt is a problem anyway. While $28.7 trillion sounds menacing, what actually matters is how much interest we have to pay each year on that debt. And again, that has to be measured as a portion of our economy, or GDP, if we are talking about affordability. That cost is currently 1.5% of GDP, and projected at 1.9% for the coming decade. This is quite reasonable by any historical or international comparison; we hit more than 3% of GDP in net interest payments on the public debt in the 1990s, when the economy had an economic expansion that lasted longer than any previous one in U.S. history.
Manchin also asks how he can vote for “a bill that proposes massive expansion to social programs when vital programs like Social Security and Medicare face insolvency and benefits could start being reduced as soon as 2026 in Medicare and 2033 in Social Security?” But this is also a false alarm. It is based on a misunderstanding of the finances of these programs; they do not face “insolvency” any more than the Pentagon or the Treasury Department does.
Social Security benefits right now are paid for by payroll taxes of workers currently employed. The program also has some savings — about $2.8 trillion currently — but this is not the basis of the checks that 69 million Americans are receiving. As people live longer and spend more years in retirement, more revenue has been needed — and Social Security did not go broke.
Over the current 75-year planning period (2021-95), Social Security’s spending is projected to increase from 5.1% to 5.9% of GDP. This is comparable to gaps closed in a single decade in the past, including the 1950s, ’60s, ’70s and ’80s. There are a number of ways to raise the revenue, including taxing income over $140,000 annually (currently not subject to payroll tax) or taxing income other than payroll (like capital gains from investments). The money can also come from general revenue. Medicare already gets a substantial part of its funding from general revenue, in addition to its payroll taxes. Of course it will be better to make these changes sooner rather than later, but neither program is facing “insolvency.” In fact, Medicare’s projected shortfall has fallen by 56% since 2009, mostly because of Obamacare.
On the other side of the ledger, the benefits from even the current, reduced version of the budget reconciliation bill would be life-changing for tens of millions of Americans: A child tax credit of $250-$300 monthly for more than 35 million families, which was recently expanded to include millions of the poorest families. Free preschool for 3- and 4-year-olds (average current cost to parents: $8,600 per year). Child care subsidies that would expand access to millions of children.
Medicare would be expanded to include hearing coverage (the prior version of the bill included dental and vision as well). Millions of people who currently do not have access to Medicaid would get healthcare.
What’s being proposed here is what most countries with national income comparable to the U.S. already have. Are Americans so different from everyone else? Don’t we want the same security for our health and our children? These questions answer themselves.
If this bill is passed, voters in the midterm elections a year from now will support those incumbents who made it happen.