As the bipartisan infrastructure bill works its way through the Senate, a revision to the top “Spending Pay-For” in the agreement should give taxpayers and policymakers who mind debt and deficits some great concern because it likely double-counts some savings, and leads to taxpayers being in the hole for $160 billion.
The original version of the “Spending Pay-Fors” document identified a whopping $205 billion in offsets to new spending from “repurposing of certain unused COVID relief dollars.” NTU pointed out on Tuesday that “some simple math indicates that rescissions from COVID-19 legislation [in the infrastructure bill] only [add] up to $42 billion.” One pressing question, then, was how lawmakers accounted for the $163 billion gap.
Late Tuesday we received an answer. The Senators supporting the agreement revised the top bullet point to say that “[a]approximately $210 billion” of the bill’s spending offsets will come from “repurposing of certain unused COVID relief dollars,” which to them includes “estimates of savings produced from reduced uptake and sunsetting of underutilized credits.” Specifically, Senators say, the $42 billion in rescissions, $8 billion in savings from ending the Employee Retention Tax Credit (ERTC) early, and lower uptake of the ERTC and the COVID-era paid leave tax credit will amount to the $210 billion total.
Simply put, $160 billion of that $210 billion should not count. While the $42 billion in rescissions and the $8 billion from ending ERTC early represent real spending offsets for taxpayers, the $160 billion from lower-than-expected uptake of ERTC and paid leave credits has likely already been accounted for in the Congressional Budget Office’s (CBO) baseline of federal budget projections.
Don’t believe us? Ask CBO.
On July 16, CBO sent a letter to Sen. Mark Warner (D-VA), upon the Senator’s request to learn more “about the budgetary effects of the tax credit for employer-paid sick and family leave.” CBO noted that their initial projections found the paid leave credit would increase deficits by $105 billion, and that subsequent changes to the credit would increase costs of the credit by around $8 billion. CBO then noted that as of July 15, 2021, the Internal Revenue Service (IRS) had only processed $6.7 billion in paid leave credits from April 1, 2020 through March 31, 2021. That’s a difference of $106 billion from CBO’s 10-year projections for the paid leave credit.
While CBO cautions that the “recent information is not directly comparable with the original estimate for FFCRA for several reasons,” they have likely already accounted for the reduced uptake of paid leave credits in their updated budget baseline:
CBO’s most recent baseline projections, which reflect current law and incorporate information available through May 18, 2021, show larger-than-anticipated receipts. Less use of this credit than was anticipated near the time of enactment may be one of the factors supporting the recent strength in revenues.
In other words, if reduced uptake of the paid leave credit is leading to more revenues for the federal government than previously anticipated, CBO has already factored that increased revenue into their budget baseline. Lawmakers who seek to use this as an offset in the infrastructure bill are essentially double-counting the savings, and/or using a budget baseline that is already out of date.
The same principle applies to the ERTC. On the same date, July 16, CBO sent a letter to Sen. Kyrsten Sinema (D-AZ), upon the Senator’s request to learn more “about the budgetary effects of the employee retention tax credit.” CBO noted that their initial projections found the ERTC would increase deficits by $55 billion, and that subsequent changes to the credit would increase costs of the credit around $31 billion. CBO then noted that as of July 15, 2021 the Internal Revenue Service (IRS) had only processed $18.4 billion in ERTCs from April 1, 2020 through March 31, 2021. That’s a difference of $67.6 billion from CBO’s 10-year projections for the paid leave credit.
Again, CBO cautions that the “recent information is not directly comparable with the original estimate for the CARES Act for several reasons.” Nonetheless, CBO has likely already accounted for the reduced uptake of ERTCs in their updated budget baseline:
CBO’s most recent baseline projections, which reflect current law and incorporate information available through May 18, 2021, show larger-than-anticipated receipts. Less use of this credit than was anticipated near the time of enactment may be one of the factors supporting the recent strength in revenues.
Again, if reduced uptake of the ERTC is leading to more revenues for the federal government than previously anticipated, CBO has already factored that increased revenue into their budget baseline. Lawmakers who seek to use reduced ERTC uptake as an offset in the infrastructure bill are essentially double-counting the savings, and/or using a budget baseline that is already out of date.
In short, Senators are relying on a gigantic, 12-digit gimmick to claim the infrastructure bill is fully paid for. It is not. Instead, lawmakers should pursue real spending reductions to offset the increased federal costs incurred by the infrastructure package. NTU has between $327 billion and $347 billion of suggestions outlined here.