The Democrats' enormous tax and spending package, known as Build Back Better, has stalled in Congress with little hope of recovery in its present form.
President Joe Biden said last week that he'd settle for enacting as much of it as possible. If the administration is willing to prioritize and apply sound fiscal policy, the result could be a better bill — or bills — with every chance of passing.
Although BBB identifies real problems and offers promising solutions, it's expensive, complicated and packed with budget gimmickry. A trimmed-down version, honestly accounted for, could improve on the original in crucial respects.
The plan's most urgent proposals are aimed at climate change. They include generous new support for investments in clean energy, carbon abatement and climate resilience — all badly needed. The 10-year cost is some $555 billion, a huge outlay by past standards but modest measured against the gravity of the problem.
The reform also aims to cut child poverty and widen opportunity for low-income families. It includes a big one-year increase in the child tax credit, from $2,000 to $3,600 for children 5 or under and $3,000 for those between 6 and 17, and allows parents without taxable income to claim the full amount.
The 10-year cost of those changes — calculated on a permanent rather than temporary basis, as it should be — would be $1.6 trillion. Finally, the bill also provides access to more affordable child care and universal free preschool, at a 10-year cost, again on a permanent basis, of some $750 billion.
All three elements are both valuable on the merits and politically plausible. The problem is that a candid accounting of even this pared-back plan would necessitate more revenue than the original envisioned. To bridge the gap, Biden should suggest trimming some of the outlays and looking elsewhere for additional funds.
One option is to cut the cost of a permanent expansion of the child tax credit — by increasing the credits to (say) $3,000 and $2,500, lowering the income threshold at which the benefit starts to phase out, and making the payments partially rather than fully refundable. Together with other adjustments, this could be done at half the cost of the Build Back Better formula, while still significantly reducing child poverty.
Combined with the originally proposed revenue raisers — a 15% minimum tax on corporate book income, a surtax of 5% on people with incomes above $10 million a year and 8% above $25 million, an extension of the existing 3.8% investment tax to individuals' trade and business income, enhanced IRS enforcement, and more — this change to the child tax credit reform would be about enough to make the plan fully paid for.
Should those tweaks prove untenable, Biden has plenty of other options to consider. Moves toward carbon pricing and an outright carbon tax would strengthen the plan's finances while reinforcing the other climate-change initiatives. Keeping the deduction for state and local taxes capped at $10,000 would raise hundreds of billions of dollars, largely from the better-off. Reviving a shamefully discarded proposal to close one of the stupidest loopholes in the tax code — the treatment of capital gains at death — would raise upward of $200 billion over 10 years.
