Assessing Build Back Better’s Fiscal Impact: 3 Key Facts

Update, December 22: We revised this post to update our projection of the deficit reduction from Build Back Better in the second decade.

The Congressional Budget Office (CBO) has stated that it will produce a report on the budgetary effects of making certain policies in Build Back Better permanent, apparently in response to Senator Lindsey Graham’s request. This report will not show Build Back Better’s true cost, nor will it present a plausible prediction of what Congress would do when considering extending the provisions, as we have explained when assessing similar analyses. The actual fiscal impact of Build Back Better — the House-passed bill, as written — appears to be roughly zero over the next decade, and around $2 trillion in deficit reduction in the subsequent decade. Based on recent history, it is highly unlikely that Congress would permanently extend all of the bill’s temporary provisions without any offsets, which is the assumption that Senator Graham instructed CBO to use for this analysis.

When assessing the CBO report, keep three things in mind:

1. The actual, House-passed Build Back Better legislation — not the policies as assumed by Senator Graham — is completely paid for over the next decade under reasonable assumptions, and very nearly paid for according to CBO’s estimates. While both CBO and the Treasury Department agree that the bill’s increased IRS funding for the enforcement of tax laws would generate more revenue, Treasury estimates are somewhat higher — although reasonable and likely even conservative, given the size of the overall gap between what taxes are legally owed and collected, as we’ve explained. Under the Treasury estimates, the bill’s cost would be more than offset over the next decade. Senate leaders have indicated they plan to pay for the Build Back Better legislation that they pass. This Congress has thus shown a commitment to paying for Build Back Better’s investments — a commitment that has strengthened during consideration of the package, since the budget resolution itself would have allowed for a reconciliation bill that was not fully paid for. This commitment stands in sharp contrast to the 2001 and 2017 tax-cut packages, which significantly increased deficits.
2. The Build Back Better legislation would reduce the deficit over the second decade (2032-2041). We project that the bill includes roughly $1.8 trillion in deficit reduction over the second decade based on CBO cost analyses, and $2.0 trillion when an extrapolation of Treasury’s estimate of revenues from enforcement funding are used. Even though many spending provisions in the bill are for a finite period, most of the revenue increases and reductions in prescription drug spending are permanent. Congress’s decision to make the deficit-reducing provisions of Build Back Better permanent reflects a deliberate policy choice — one that will reduce widening income and wealth inequality, slow the growth in prescription drug costs, and lessen fiscal challenges facing future policymakers and generations.

3. It’s reasonable to assume that policymakers would couple the cost of extending Build Back Better’s provisions with substantial offsets. When Congress invests in reducing poverty, expanding health care, or bolstering human capital, it tends to offset these costs — as both Build Back Better and the Affordable Care Act suggest. Policymakers would have to evaluate the benefits and costs of Build Back Better’s policies as they near their expiration date and act affirmatively if they want to extend them. They would no doubt face significant pressure to offset the cost of these extensions.

   Just as policymakers crafting the current package committed to financing the investments with sound offsets, those considering extensions of these policies in the future likely would similarly choose to do so. Sound revenue-raising offsets would be readily available for this task. While developing Build Back Better, Congress has considered numerous revenue measures that would raise trillions of dollars over the coming decade, but did not include many, partially because total investments were scaled back. These policies, which would raise revenue from wealthy households and profitable corporations and are broadly popular with the public, will remain available in the future.

While assessing Build Back Better’s fiscal impact is important, it is not the only — or even the most important — metric for assessing the legislation. Policymakers should also focus on how the investments in Build Back Better will meet critical needs and have important long-term benefits for individuals and the nation as a whole. For example, its investments in children, early education, and college access and completion have a strong evidence base, showing they will reduce poverty and hardship among children and improve long-term outcomes in their education and health. Those investments would over time also boost labor force participation and productivity, enhancing the nation’s long-term economic outlook.

The package will make us a fairer, more equitable nation; it is fiscally sustainable; and the Senate should move swiftly to pass it.