Senate Majority Leader Chuck Schumer (D-NY) announced late on July 13 that Senate Budget Committee Democrats had reached a deal on a $3.5-trillion spending package that Democrats will try to pass through the reconciliation process without Republican votes. Details are still emerging about what will be in and out of the package, and how Democrats will propose to pay for $3.5 trillion in new spending, but it may be worth putting this gigantic proposal in context for taxpayers.
- The proposed spending amounts to $24,252 per U.S. taxpayer ($3.5 trillion divided by 144.3 million taxpayers in 2018, the latest year for which IRS data is available). For the same amount of money, Congress could send every taxpayer who filed a return $2,425 per year for the next 10 years -- quadruple the size of December’s $600 direct payments. We’re not proposing Congress do so, but we hope it demonstrates the extraordinary scale and scope of this agreement.
- Even on a broader measure of the U.S. population, the proposed spending amounts to $10,525 per U.S. resident ($3.5 trillion divided by 332.5 million), or $1,052 per resident per year for the next 10 years.
- The $3.5 trillion would increase federal spending by a whopping 6.0 percent over the next 10 years, excluding net interest on the debt (and according to the Congressional Budget Office’s latest projections). While this may seem small to some, the CARES Act -- significant emergency legislation passed on a bipartisan basis to deal with the horrific effects of COVID-19 -- was only half that size, adding $1.7 trillion to deficits.
- If the $3.5 trillion in spending were spread out equally over 10 years, at $350 billion per year, spending on this legislation alone would outstrip America’s net interest payments on its debt for each of the next three years. And, of course, any part of the $3.5-trillion spending plan that adds to debt and deficits would raise the federal government’s net interest costs in the long run.
- Senate Democrats are planning to fully offset the $3.5 trillion in new spending with tax hikes on both the business and individual sides of the code. That $3.5 trillion is 91 percent of expected corporate income tax receipts over the next 10 years (over $3.8 trillion). If Congress wanted to pay for this spending with just increases on the corporate side of the tax code, they would need to nearly double net corporate tax collections in the next 10 years.
- Between the various COVID relief bills of the past 18 months (some of which were bipartisan), and the American Rescue Plan Act (ARPA), Congress increased the deficit by at least $5.1 trillion from January 2020 through March 2021. Though some lawmakers are insisting on fully offsetting the cost of both the $3.5-trillion spending package and the related, $1.2-trillion bipartisan infrastructure bill, many of the proposed offsets fall into one of two categories: 1) dubious or 2) harmful to economic growth. And in any case, these legislative efforts combined amount to $9.1 trillion in new spending . That’s $63,063 per U.S. taxpayer or $27,368 per U.S. resident, which all could be passed by Congress in under two years.
The most important context, of course, is where our debt and deficit situation stand. As of this writing the nation is nearly $28.5 trillion in debt, more than 78 percent of which is held by the public (rather than intragovernmental holdings, or debt the federal government owes itself). The Congressional Budget Office estimates that deficits will average $1.2 trillion per year over the next 10 years (fiscal years 2022 through 2031). For FY 2020, the deficit was a record-breaking $3.1 trillion. For FY 2021, CBO projects the deficit will be $3 trillion.
Congress should be focused on addressing the dire debt and deficit picture detailed above. Even if the $3.5-trillion spending plan and $1.2-trillion bipartisan infrastructure plan are fully offset -- and that’s a highly uncertain proposition at this time - these plans would do nothing to mitigate the federal government’s $28.5 trillion debt or projected $1.2 trillion per-year deficits.