Biden Bill Could Add $3T to Deficits if Made Permanent: CBO

Senator Graham Holds News Conference on Build Back Better CBO Score
SARAH SILBIGER
By Yuval Rosenberg

TGIF! Here's what you need to know before wrapping up the week.

Biden Bill Could Add $3T to Deficits if Made Permanent Without New Offsets: CBO

The Congressional Budget Office on Friday released a new analysis of House Democrats’ Build Back Better Act, finding that if most provisions in the legislation were made permanent, the social spending and climate plan would increase the deficit by $2.75 trillion over 10 years, or $3 trillion including interest costs.

The estimate, requested by the top Republicans on the Senate and House budget committees, could further complicate Democrats’ efforts to enact the legislation.

Republicans and budget hawks have criticized Democrats for relying on budget gimmicks to pay for their proposed new spending, making key programs temporary to reduce the official cost of the package, even as Democrats would like to have those programs be permanent. The expanded child tax credit, for example, would expire after next year.

The Congressional Budget Office’s initial cost estimate, released last month, only looked at the bill as written, with those sunsets in place. It found that the bill would increase deficits by $160 billion over 10 years, or about $230 billion including interest. (The Biden administration challenged the initial estimate, arguing that its plan to beef up the IRS would generate more revenue than the budget office projected).

The CBO’s new analysis, requested by Sen. Lindsey Graham (R-SC), the ranking Republican on the Senate Budget Committee, and Rep. Jason Smith (R-MO), the top Republican on the House Budget Committee, looks at the cost of the plan if temporary provisions were made permanent — without being paid for. The gross cost would roughly double, rising from $2.4 trillion to more than $4.7 trillion. The expanded child tax credit, which costs $185 billion for one year in the official score of the bill, would cost $1.6 trillion if extended over the entire decade.

“If you believe these programs will go away in one, two, or three years, you shouldn’t have a driver’s license,” Graham told reporters Friday. “Build Back Better is a spending orgy.”

President Biden and Democrats have committed to paying for any extension of programs in the bill, and Brian Deese, director of Biden’s national economic council, said Friday that the CBO analysis was "of a hypothetical future bill" that Biden "would not support."

Democratic leaders also said Republicans were looking to mislead the public by requesting this CBO report.

“The Republicans are so desperate to justify their opposition to the popular, much-needed provisions in the Build Back Better Act that they’ve resorted to requesting fake scores based on mistruths,” Senate Majority Leader Chuck Schumer said in a statement. “The Republican-requested fake CBO score does not take into account the fact that President Biden and Democrats have committed that any extensions of the Build Back Better Act in the future will be fully offset, therefore ensuring BBBA will not increase the deficit.”

Still, as Maya MacGuineas, president of the Committee for a Responsible Federal Budget points out, “historic experience doesn’t instill confidence– more often than not, extensions of expiring policies are added to the nation’s credit card.”

Why it matters, part 1: Graham made clear he is hoping to convince Sen. Joe Manchin (D-WV), a key vote who has already expressed concerns about the Democratic bill, to pause or kill the plan. Graham “mentioned Manchin by name approximately 20 times during a roughly 27-minute press conference Friday,” The Hill’s Jordain Carney reports. And Graham openly admitted “my hope is that Sen. Manchin will say, 'Stop, shelve Build Back Better until we find better answers to where inflation is headed.”

Why it matters, part 2: The new report highlights the risk Democrats have chosen to take in structuring their bill this way.

By including more programs and artificially having them sunset — rather than narrowing the scope of the bill to a smaller group of priorities, as some in the party had urged — Democrats were already running the risk that at least some measures wouldn't be renewed by a future Congress, one that could well be controlled by Republicans. The CBO’s new analysis points to another potential pitfall: Even if that future Congress does want to renew the programs, finding agreement on how to finance them is likely to be a challenge, especially given the difficulties Democrats encountered over recent months in finding tax hikes and other offsets that enough of their members could accept.

“Arbitrary expirations don’t make policies cheaper, they just make them shorter — and sooner or later politicians will have to come to terms with how to address these new benefit cliffs,” said MacGuineas, who has criticized Democrats for using gimmicks in their plan. “CBO’s report doesn’t mean the Build Back Better Act will add $2.75 trillion to the debt; the legislation as it stands would increase the deficit by nearly $160 billion over a decade. But the report does show how expirations in the bill will require tough choices on whether or not to extend these provisions and how to finance them.”

Inflation Sees Biggest Jump Since 1982

Consumer prices rose 6.8% in November compared to a year earlier, the Labor Department announced Friday, the highest year-over-year inflation rate in the U.S. in 39 years.

On a month-over-month basis, the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.8%, a slight decrease from the 0.9% increase recorded in October.

A problem for consumers: Price increases were recorded in most major consumer categories, including food, fuel, shelter and vehicles. Gasoline prices were up 58% over 12 months, used cars prices rose by 31% and meat, poultry and fish were higher by 13%. The rapid increase in prices means that the wage increases seen by many workers over the last year are being eaten up by inflation.

“Prices pressures are much more widespread,” said Leslie Preston, senior economist at TD Economics, in a statement, citing strong consumer demand and supply chain issues. “Neither of these factors is likely to wane terribly quickly.”

Speaking at the White House, President Biden said the “numbers reflect the pressures that economies around the world are facing as we emerge from a global pandemic — prices are rising.” At the same time, Biden said he thinks consumers have seen the worst of the problem, with gas prices already coming down and broad improvements expected in the coming months. “I think it's the peak of the crisis,” he said.

But economists caution that while inflation may be nearing a peak, it will likely continue to be an important issue for many months to come. “Yes, inflation can abate, but what [policymakers] care about is, is it significant or insignificant to peoples’ lives and decision-making?” Diane Swonk, chief economist at Grant Thornton, told The Washington Post. “This is inflation that’s not likely to be insignificant anytime soon, and that’s a problem.”

A political weapon for the GOP: Soon after the report was released, the Republican National Committee sent an email blasting “Bidenflation” as part of its effort to defeat the roughly $2 trillion Build Back Better bill that Democrats are still working on in Congress. “Joe Biden and the Democrats’ Build Back Broke agenda created historically high inflation, making Americans pay more for nearly everything this holiday season,” the email charges.

The message is part of a larger political effort to use inflation as a weapon in the battle to control Congress in the 2022 midterms. “Republicans see inflation as a powerful issue as they blame the spending bills already passed by President Biden and congressional Democrats for sparking the price hikes,” says Paul Steinhauser of Fox News.

Voters say that inflation is indeed a top concern at the moment, and it stands to reason that the price hikes consumers have seen could hurt Democrats at the polls next year. But economists are divided on the ultimate source of the current inflationary surge. Most agree that the trillions of dollars provided by the federal government for relief and economic stimulus during the Covid crisis are a factor, but supply side issues are involved as well, with bottlenecks and shortages of labor and materials playing an important role.

Democrats make their case: The White House argues that the inflationary surge must be seen in the context of a rapidly recovering economy. “Yesterday, we got more proof that our jobs recovery is on track and setting records — with unemployment insurance claims falling to their lowest level in 50 years and nearly 6 million Americans back to work,” Biden said. “Economic growth is stronger here than virtually any other nation.”

At the same time, Biden recognized the problem of inflation, saying “we have to get prices and costs down before consumers will feel confident in that recovery. That is a top goal of my administration.”

On the legislative front, House Speaker Nancy Pelosi (D-CA) released a letter Friday co-signed by dozens of economists saying that the Build Back Better Act will help “alleviate some of the strain caused by inflation” by lowering drug prices and reducing the cost of child care for families. But White House economic adviser Jared Bernstein soft-pedaled that claim, pointing out that while the Biden investment plan would have long-term effects, the current inflation problem is more immediate.

For now, the Biden administration may just have to ride out the next few months of high inflation and hope that the most important inflationary factor — the coronavirus — wanes, and that as the Federal Reserve tapers its support for the economy and private firms repair their supply chains, price hikes ease significantly.

“There are very good reasons to believe that inflation is going to moderate into 2022, because of the withdrawal of fiscal support, the tapering, the adjustments on the supply chain issues,” Tony Fratto, a Treasury Department official in the George W. Bush administration, told CNBC. “In six or seven months, we’re not going to be talking about inflation the way we’re talking about inflation today.”

Drug Industry Pricing Practices ‘Unsustainable, Unjustified, and Unfair’: House Report

The pharmaceutical industry has raised drug prices in the United States far faster than the rate of inflation, using practices that are “unsustainable, unjustified, and unfair to patients and taxpayers,” according to a new report released Friday by the House Oversight Committee detailing the findings of a nearly three-year investigation led by the panel’s Democrats.

The report is the result of a review of more than 1.5 million pages of internal company documents that, it says, “provide significant new insights into the tactics drug companies use to raise prices and keep them high by suppressing competition.” The congressional investigation also included five hearings with drug company executives, patients and policy experts.

The report finds that, in the five years from 2016 to 2020, pharmaceutical companies raised the prices of brand-name prescription drugs by 36%, almost four times the rate of inflation. And the 20 most prescribed brand-name drugs in Medicare’s Part D prescription drug program saw their prices rise by more than 12% a year from 2012 to 2017, or about 10 times the rate of inflation.

“Drug companies have raised prices relentlessly for decades while manipulating the patent system and other laws to delay competition from lower-priced generics,” Rep. Carolyn Maloney (D-NY), chair of the committee, wrote in the preamble of the 269-page report. “These companies have specifically targeted the U.S. market for higher prices, even while cutting prices in other countries, because weaknesses in our health care system have allowed them to get away with outrageous prices and anticompetitive conduct.”

The report adds that the drug industry’s strategy has been driven in large part by the law prohibiting Medicare from negotiating drug prices: “The Committee’s analysis found that taxpayers could have saved more than $25 billion over a five-year period for just seven of the drugs investigated—Humira, Imbruvica, Sensipar, Enbrel, Lantus, NovoLog, and Lyrica—if private Medicare Part D plans had obtained the same discounts as other federal health programs that are empowered to negotiate,” it says. “If Medicare Part D plans had received the same discounts as other federal health care programs for the three frequently used insulin products investigated by the Committee—Humalog, Lantus, and NovoLog—Medicare could have saved more than $16.7 billion in the period from 2011 through 2017.”

Democrats hope to lift the prohibition on Medicare negotiations for some drugs as part of their Build Back Better Act.

The report also challenges the drug industry’s claims that high drug prices are necessary to fund innovative research, finding that industry spending on research and development is “dwarfed by revenues year after year” — and that “when drug companies did invest in R&D, those expenditures often went to research designed to protect existing market monopolies.”

A Republican response: Republicans on the Oversight committee issued their own 19-page report Friday looking at the role played by pharmacy benefit managers (PBMs), the companies that administer prescription drug benefits for Medicare and other insurers. Drug companies point to benefit managers’ practices as a reason that prices keep rising.

The GOP report says that Democrats , “seeking to cast [pharmaceutical] companies as the sole villains in the drug cost debate,” are disregarding the benefits the drug companies provide and ignoring the role in pricing played by PBMs, which it says drive drug list prices higher and “use their market leverage to increase their profits, not reduce costs for consumers.”

Read more at The Washington Post or Reuters.

Budget Deficit Widens in November

The monthly federal budget deficit rose to $191 billion in November, the U.S. Treasury announced Friday, up from $165 billion in October.

Revenues increased by 28% compared to a year ago, totaling $281 billion, driven higher largely by payroll tax collections in an economy recovering from the Covid-19 epidemic. But spending rose even more, up 30% to $473 billion, with increased spending driven in part by pandemic-related programs, as well as the expanded child tax credit.

The cumulative deficit so far this fiscal year, which began in October, is $356 billion, 17% smaller than the deficit recorded at the same point a year ago.

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