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The Build Back Better Framework: The Good, the Bad, the Ugly

The White House’s quest for a legislatively viable version of its Build Back Better agenda has officially reached the “fake it till you make it” stage.

After a months-long negotiation with his party’s most moderate senators, Joe Biden unveiled a framework for a slimmed-down version of his Build Back Better agenda on Thursday. Initially a $3.5 trillion package of investments in social welfare and climate-change mitigation, the president’s signature proposal now aims to dole out $1.75 trillion over the coming decade, a sum equal to roughly 0.6 percent of projected GDP.

This halving of the bill’s top-line cost is a concession to the austere tastes of Joe Manchin and Kyrsten Sinema. And the framework’s details reflect those senators’ various ideological hang-ups. In effect, the Democratic leadership has put together a list of programs and tax hikes that the party’s right flank hasn’t explicitly ruled out. As of this writing, however, Manchin and Sinema have not publicly endorsed the framework either.My Week In New YorkA week-in-review newsletter from the people who make New York Magazine.

The president’s decision to declare victory on a compromise derives less from an unequivocal breakthrough in negotiations than from the demands of his calendar: Biden is heading abroad to attend the United Nations Climate Change Conference, and wished to demonstrate progress on decarbonization before arriving in Glasgow. Separately, Virginia will hold its gubernatorial election on Tuesday, and polls show Democrat Terry McAuliffe in a dead heat with Republican Glenn Youngkin in that solidly blue state. Democrats believe that passing the president’s bipartisan infrastructure bill before that vote will aid McAuliffe. And since House progressives have refused to support the infrastructure bill until an agreement on Build Back Better is reached, Biden needed to produce a framework today in order to have any hope of making a legislative contribution to McAuliffe’s campaign.

With that said, the $1.75 trillion framework gives us a sense of Biden’s endgame. It’s unlikely that the White House would have released this document if it didn’t believe that the final version of Build Back Better would roughly approximate it. Therefore, the outline is worth evaluating on its own merits. It has good, bad, and ugly aspects.

The good.

The Democratic Party barely holds Congress. It can afford no more than three defections on any partisan vote in the House, and its Senate majority exists at the mercy of a coal magnate from a Trump-plus-40 state. Not long ago, conventional wisdom held that such a fragile trifecta would be inadequate for enacting major policy change of any kind. Last November, Matt Yglesias summarized the stakes of the impending Georgia runoff elections thusly: “If the Democrats win, we’re going to have a functioning government, but any legislation is going to have to be substantially bipartisan.”

Judged against this baseline, the $1.75 trillion version of Build Back Better would be a remarkable achievement. As drafted in Thursday’s framework. Biden’s bill would:

Create free and universal prekindergarten throughout the United States, which would be the largest expansion of American public education in a century.

Establish a de facto basic income for working-class families. Previously, Biden’s American Rescue Plan (ARP) increased the maximum value of the child tax credit (CTC) from $2,000 to $3,000 for each child over 6 and $3,600 for each child below that age. Separately, ARP made the child tax credit fully refundable for the first time, meaning that kids whose parents earned too little to owe federal taxes would still be eligible for CTC payments. In effect, this turned the CTC into a near-universal child allowance. The Build Back Better framework only extends the higher-value CTC for a year (meaning that, in 2023, it goes back to being worth $2,000 per kid). But the bill would make the CTC’s refundability permanent. Which is to say: For the first time since Bill Clinton’s welfare reform, America’s poorest families will be guaranteed cash assistance, no strings attached. That is very good news. The refundable CTC has already proven effective at dramatically reducing child poverty. And a large body of sociological research shows that providing cash assistance to low-income families improves their kids’ later life outcomes.

Invest $555 billion into combating climate change. Manchin killed Biden’s Clean Electricity Performance Program, a policy that would have required all electric utilities to draw 80 percent of their power from non-carbon sources by 2030, or else face steep fines. But the West Virginia senator (and minor coal baron) has apparently left the rest of Biden’s climate agenda alone. In fact, as the White House cut its initial bill in half, it barely reduced the size of its climate provisions. The fact that Biden gave decarbonization such priority is a testament to the climate movement’s success. And it could very well prove transformational. Barack Obama’s 2009 stimulus put $90 billion into clean energy and catalyzed a steep drop in the price of renewables. Biden’s investment is nearly six times as large. It’s impossible to know what the return on that investment will be. And given the stakes of minimizing global warming, $555 billion over a decade is an irresponsibly small investment. Nevertheless, it will greatly increase America’s odds of keeping its pledges on decarbonization, and developing technology that makes it easier for the Global South to industrialize sustainably.

Expand access to affordable health insurance. The bill would reduce insurance premiums for 9 million Americans through a (temporary) expansion of Affordable Care Act subsidies, and extend premium-free health insurance to low-income Americans in states that haven’t expanded Medicaid (through a complex tax-credit scheme).

Do a bunch of other good stuff (in temporary and imperfect ways). One the bill’s big-ticket items is a system of subsidized child care that presents some real hazards, but would nevertheless reduce the cost of care for working-class families, while increasing the wages of child-care workers. The legislation would also increase federal funding for affordable housing, at-home care for the elderly, college scholarships, and free school meals, among other good things.

Make the tax code slightly fairer. The framework would not raise the corporate tax rate, but it would make it harder for large, profitable firms to nullify their obligations to Uncle Sam through tax credits and creative accounting. Under Biden’s proposal, companies with over $1 billion in profits will need to pay a minimum 15 percent tax on the profits they report to their shareholders. Firms would also face a one percent surcharge any time they bought back their own shares. The framework would also establish a 15 percent tax on the foreign profits of U.S. companies.

Finally, it would impose a surtax of 5 percent on annual income above $10 million and an additional 3 percent surtax on income above $25 million.

All of these reforms come on top of the $1.9 trillion American Rescue Plan, which (1) dramatically accelerated America’s economic recovery, (2) helped to make the COVID recession the first in history that hit high-income households harder than low-income ones, and (3) facilitated an upsurge in labor militancy by enabling workers to build up savings while unemployed.

Taken together — including a few hundred billion dollars of public investment in domestic infrastructure and manufacturing across Biden’s bipartisan bills — and you have a pretty solid haul for a Democratic trifecta that barely exists.

The bad.

But even when considered in the context of the Democrats’ narrow majorities, two aspects of the Build Back Better framework are dismaying:

Democrats aren’t soaking the rich, just lightly splashing them. In 2012, the Republican platform called for America to adopt a 25 percent top corporate tax rate. Nine years later, the Romney-Ryan ticket’s position on corporate taxation has proven too left-wing for Kyrsten Sinema and, thus, for inclusion in Build Back Better.

In fact, Biden’s bill leaves the bulk of the Trump tax cuts in place, while also preserving a long list of notorious tax breaks for the wealthy. The president’s initial push for a massive increase in the capital gains tax rate has been abandoned entirely. The carried interest loophole — which enables hedge-fund managers and private-equity executives to pay a lower rate on their (de facto) labor income than many schoolteachers — remains unclosed. Biden had tried to end “stepped-up basis,” a law that allows Americans who inherit unrealized capital gains to cash them out without paying a cent in taxes. To appease congressional Democrats who alleged that this policy would harm humble family farms, the White House’s proposal actually allowed heirs to retain immunity from taxation on their first $1 million of inherited assets. That still wasn’t good enough.

Even the president’s plans for vigorously enforcing existing tax law inspired significant intraparty opposition. To help the IRS catch tax cheats, the White House proposed requiring banks to inform the tax agency of any depositors who move $10,000 into or out of their accounts in a single year. Manchin objected, and the administration countered with a proposal that would establish this rule only for the accounts of Americans who earn more than $400,000 a year (because middle-class Americans should be allowed to cheat on their taxes?).

Thursday’s framework doesn’t include a lifting of the cap on the state and local income tax deduction, a top demand from House Democrats who represent affluent, blue-state constituencies. But the Democratic leadership says that an expansion of that deduction will be a part of the final legislation. So Biden’s bill could very well lower the tax burdens of some Americans in the top 2 percent of the income distribution.

This is a really poor showing. And while Sinema single-handedly vetoed many potential tax increases, Biden’s proposed capital gains tax and end to stepped-up basis attracted opposition from a sizable minority of congressional Democrats. We already knew that the party was unwilling to enact broad-based tax increases on middle-class households, a taboo that effectively prohibits the U.S. from constructing a Western European–style welfare state. Now, it seems that even taxing single-digit millionaires is a dicey proposition. The Overton window on corporation taxation has shifted so far right that Marco Rubio’s position in 2016 is to the left of the 2021 Democratic consensus.

It is possible that the Democrats’ timidity on taxation reflects today’s relative lack of fiscal constraints. Inflation still looks transitory. Interest rates on U.S. debt are still low, and the dollar’s position as the world’s reserve currency looks secure. In this context, Democrats don’t need to choose between aggressively taxing the wealthy and enacting incremental expansions of the welfare state. Perhaps, if constraints were more binding, the party’s commitment to expanding social welfare would persist, while its deference toward multimillionaire heirs would end.

Perhaps.

The bulk of Biden’s legacy is set to self-destruct. Ultimately, the Democrats’ social welfare bill is still trying to do too many things. The party cut paid leave from the legislation Wednesday evening. But, as noted above, it retained child care, housing, health care, the child allowance, elder care, and pre-K, among many other programs. In isolation, all of these initiatives are better than nothing. But in the context of a bill with a fixed top-line cost, less would be more.

Just about every policy in the $1.75 trillion framework is set to expire between now and 2028. And most of the big-ticket items are only partially funded at the federal level; Uncle Sam picks up the tab for pre-K for three years, then states are required to kick in 40 percent. Child care also becomes a 90-to-10 state-federal split after year three. Further, the program includes a soft work requirement and an asset test. These phaseouts, state partnerships, and eligibility restrictions enable Democrats to do something on a wide range of the party’s objectives without exceeding moderates’ tolerance for new spending. But this maximalism comes at the expense of the Biden agenda’s quality and durability.

As the Medicaid expansion made clear, red states can’t be trusted to expand social welfare just because the federal government offers them a great deal on the proposition. Penny-pinching on the child-care program, meanwhile, has led Democrats to withhold subsidies from middle-class families during the program’s first years of implementation. In practice, this could increase the cost of child care for affluent households ahead of the 2022 midterm election, an outcome that seems neither substantively nor politically ideal.

Most critically, the ubiquitous phaseouts could allow a future Republican government to nullify most of Biden’s legacy without lifting a finger. The political rationale for doing a bunch of programs temporarily is straightforward: Once welfare programs are established, they are famously difficult to repeal.

If this rationale is coherent, though, it’s also misguided. Part of what makes social welfare programs so sticky in the United States is the difficulty of passing any legislation through our veto-point-laden legislative system. If repealing the expanded CTC and Affordable Care Act subsidies in 2025 requires Republicans to move a bill through both chambers of Congress, those reforms will be (relatively) secure. The millions of Americans who benefit from the CTC and ACA will have ample time to mobilize on their behalf, and the status quo bias of the median voter will make marginal GOP lawmakers uneasy about casting an unpopular vote. By contrast, if Republicans merely need to do nothing in order to shrink the social welfare state, there is little reason to assume they won’t be up to that challenge. To the contrary, even if Biden’s programs become popular in their first years of existence (a hypothetical made less likely by the programs’ corner-cutting designs), GOP lawmakers could still find it politically untenable to actively support extending the legacy of the man who “stole” the 2020 election. And these considerations of the GOP’s likely conduct are no trifling matter. After all, the reason Democrats have such slim congressional majorities, despite winning the popular vote by hefty margins in the last two federal elections, is that the party faces massive structural disadvantages in the House and Senate. It is highly likely that Republicans will control at least one house of Congress from 2023 until the end of this decade. Democrats should legislate with that reality in mind. $1.75 trillion is enough to make a big investment in climate and establish two or three fully funded, permanent social programs. It’s malpractice for the party to enact a dozen temporary, underfunded ones instead.

The ugly.

Finally, the framework scraps Biden’s proposal for empowering Medicare to negotiate prescription drug prices. This is dreadful on the merits and “ugly” on the optics. Democrats have been promising to impose price controls on seniors’ pharmaceuticals since 2006. And it’s probably been the party’s single-most-popular policy proposal for the past 15 years. It also generates a large amount of revenue, which Democrats could have used to finance more generous and/or permanent social programs.

And yet it is not in Biden’s outline. What’s worse, Democrats can’t even blame Manchin and Sinema for that fact. Nearly a dozen House Democrats expressed opposition to the plan, as did New Jersey senator Bob Menendez. The policy’s omission constitutes an exorbitant gift to one of America’s most loathed industries, and a betrayal of one of the nation’s most reliable voting blocs.

Possible Tax Changes Hinge on Senate

Pro and Con: Tax Provisions in the Build Back Better Act

Citing his own opposition to the Build Back Better Act, an agricultural tax and law professor detailed some of the tax provisions that were taken out of the bill before a House vote in mid-November, as well as some of the tax provisions still in the bill that could affect farmers and other businesses.

Roger McEowen, a professor at Washburn University School of Law and a Kansas State University Extension specialist, explained some of the details of the Build Back Better Act during a webinar on Monday evening hosted by Women Managing the Farm and Kansas State University’s Department of Agricultural Economics.

The fate of the legislation, HR 5376, rests with a pair of moderate Democrats, Sen. Joe Manchin of West Virginia and Sen. Kyrsten Sinema of Arizona. Senate Majority Leader Chuck Schumer, D-N.Y., has said he believes the bill will be passed before Christmas.

“Manchin and Sinema hold the power in the Senate because they determine the fate of the bill,” McEowen said.

A lot of major provisions involving taxes were cut out of the bill before the House vote. As of now, the bill does not increase the corporate tax rate or make any adjustments to the stepped-up basis rule. The bill keeps the top individual tax rate at 37% and keeps the capital gains rate at 20% as well. There also is no change in the estate-tax exemption, which is set to increase to $12.06 million in 2022 because of inflation adjustments.

“That is reassuring to agriculture,” McEowen said of the tax provisions dropped from the bill. He added, “I would say it’s not nearly as bad from an agricultural standpoint from what could have been.”

In the bill is a provision increasing the cap on the state and local tax deductions (SALT), which are currently capped at $10,000 a year. The bill would increase the deduction to as high as $80,000 for a married couple filing jointly. The provision also would be retroactive to the beginning of 2021. McEowen said this would help people who own a lot of farm and ranch land, particularly in states with high property taxes such as Nebraska.

The bill adds a 5% tax on people with modified adjusted gross incomes of more than $10 million. That bumps up to 8% for people with incomes of more than $25 million.

For large corporations, the bill also sets a minimum corporate tax of 15% on companies with income of more than $1 billion and uses forms filed with the Securities and Exchange Commission (SEC) or other financial statements to determine the income levels of those companies. The Tax Foundation estimates this would affect about 230 major businesses.

McEowen also spotlighted a provision that expands the net investment income tax (NIIT). The 3.8% Medicare tax created in the Affordable Care Act right now taxes passive income such as cash rent. A provision in the bill expands that to also apply to trade or business income not subject to FICA taxes. McEowen said he thinks this provision would have implications for companies that use S-Corps to pass-through income to owners.

“If this passes, then I think we have to do a lot of reevaluation of S Corps for a lot of people,” McEowen said.

For farmers who are considered socially disadvantaged or economically distressed, another provision would eliminate outstanding debt on direct farm loans from being treated as farm income.

In biofuels, the bill extends the $1 per-gallon biodiesel and renewable diesel tax credits through 2026 as well. The bill also includes nearly $1 billion for biofuel infrastructure as well.

McEowen touched on other provisions of the bill — which he alternately described as “garbage” and “goodies” — not tailored to specific policies. The bill includes language for up to six semesters of free community college; free childcare for children under six years of age; expanded health care for people in states that have not expanded Medicaid; increased Medicare benefits; up to 12 weeks of paid family leave; repeals provisions that would allow drilling in the Arctic National Wildlife Refuge; imposes new bans on offshore oil drilling; and creates a payroll tax credit for local new journalists.

Overall, the Congressional Budget Office estimated the cost of the bill would be nearly $1.7 trillion with a 10-year deficit of $367 billion before IRS offsets are factored in. Still, testifying before the U.S. Senate Banking Committee on Tuesday, Treasury Secretary Janet Yellen said the bill would not increase the national debt due to higher Gross Domestic Product from other investments in the bill.

McEowen raised concerns about the current economic conditions, pointing to the October consumer inflation hitting the highest level in 31 years along with lower third-quarter home sales. With those factors, McEowen said he hoped senators such as Manchin and Sinema would “connect the dots together” and not back the bill.

Regarding inflation, McEowen pointed to the strategy used by Paul Volcker in the late 1970s-early 1980s to dramatically raise interest rates to squeeze down inflation. That strategy worked, but it also had devastating impacts on agriculture, especially land values as the higher interest rates brought down land value.

The strategy among the current Fed leaders has pumped trillions of dollars into the U.S. economy since the beginning of the pandemic, leading to the idea of too much money chasing too few goods — a classic cause of inflation, McEowen said.

“There is just so much money floating around in the economy,” he said.

Biden Infrastructure Plan: How It Affects You and Your Money

After months of back and forth tension, stalemates and political sweet talk, Congress passed Biden’s $1.2 trillion Infrastructure Investment and Jobs Act on November 5.The bill passed with a vote of 228-205 and was officially signed into law by President Biden on November 15th.¹

Now, if the word infrastructure makes you think of planes, trains and automobiles, you’re not far off track. This pricey plan would pay for updates to national roads, bridges, railways and the power grid.² But it also includes things like expanding access to high-speed internet, providing clean drinking water, adding more green energy options, and a whole lot of other things.

Basically, the $1.2 trillion infrastructure bill includes everything and the kitchen sink. Let’s get into in.

What’s in Biden’s $1.2 Trillion Infrastructure Bill?

The passing of the bill will bring with it updates to things like roads, railways and ports (although no word on whether it’ll effect the clogged global supply chain anytime soon). The bill also covers a lot of routine maintenance work that needs to be done across America, like repairing highways and updating power grids. The White House first announced the act in late July and said the goal was to “grow the economy, enhance our competitiveness, create good jobs, and make our economy more sustainable, resilient, and just.”

The Build Back Better bill must die

The Build Back Better bill — let’s call it B4 — combined with the infrastructure bill and President Biden’s green energy schemes are unprecedented threats to American national security and economic stability and must be stopped now. It could break America’s back by spurring an ever-larger surge in inflation, leading to Fed curbs, much higher taxes and recession. If the Congressional Budget Office doesn’t spell that out in the clearest terms, it has been politicized beyond redemption.

Much more important, though, is that Biden’s foreign policy failures in Anchorage with the Chinese, Geneva with the Russians, Afghanistan — which demoralized our allies and encouraged our enemies — and Glasgow, where the Chinese ignored Biden, make it clear that America has little leverage left. A death blow to national security would be to pass any form of B4, which would drain the defense and national security budgets, either through outright cuts or through inflation. And this inevitable American military decline would occur precisely when China is in the middle of a huge military expansion and Russia is feeling increasingly emboldened.

The central problems are budget and leverage.

While America is seeing current nominal growth in the stock market, it will be short-lived. The inflation/Fed action will begin to apply the brakes. Supply chain issues will begin to take a bite out of corporate performance, and the inevitable increase in taxes to cover these huge spending bills will finish the picture. Warning: Never believe a politician who claims that a huge spending bill will “pay for itself.”

This administration’s semantics have converted the word “infrastructure” to mean anything at all. The same is true for “budget.” The White House fails to understand that the real world is a set of trade-offs among possible ways to spend money, money that is actually available, and the real economy that creates money. If any form of B4 is passed, it will divert money from defense and national security and strain the overall economy. The real question is whether the many political faction Christmas gifts in B4 are worth the risk to national security and the economy. The answer is a resounding “No.”

The climate conference in Glasgow provided the global dimension to America’s leverage problem. First, Biden’s fiascos have destroyed nearly all of America’s political leverage on the world stage. Additionally, by demolishing America’s energy independence, Biden has driven up the price of energy to U.S. consumers and industry and vastly weakened the economy. Biden now begs foreign producers to increase production to bail us out, and they’ve refused. At the same time, the drive to bet America’s future on solar and wind, which require massive batteries that won’t exist for decades to store sufficient energy, and huge expansion and overhaul of the electric grid, which can’t be done for decades, puts the entire economy at risk. Add to that the inevitable sharp electricity price increases and lower reliability from solar and wind energy, and the consequences to American industry and households are clear.

Glasgow proved that our enemies understand all of this and know that B4 may be a decisive blunder, even though the White House is clueless. Along with the military buildup, China is massively expanding its coal-fired energy production through 2050. It is happy to sell America solar power systems assembled by slave labor, but it has no interest in destroying its own economy with a plunge into solar and wind. Similarly, Russia is left laughing that “woke Europe” will be largely dependent on Gazprom for winter and industrial gas supplies, thanks to Biden’s implicit green light on the Nord Stream 2 Pipeline. The bottom-line message from Glasgow is that America is welcome to commit suicide with immediate solar and wind and B4, but it will have absolutely no effect on the environment nor climate change. Biden has squandered American political leverage and B4 is the final nail.

To add insult to injury, Biden’s special presidential envoy for climate, John Kerry, still cannot grasp that his hugely expensive, candy-man diplomacy — that is, America will give you billions or trillions of dollars if you promise not to pollute or build nuclear weapons — is a global joke.

B4 will make America the first national candidate for the Darwin Award.

So, what are the politics of defeating the bill? The recent election results are clear to everyone but the Democratic Party leadership. The majority of American households know what the words “budget” and “price inflation” really mean. They will also quickly grasp the meaning of “reliable energy,” “insufficient storage” and “cultural collapse.” In political terms, that means that power is shifting to moderates in Congress who have the spine to say no to B4, to increases in the debt ceiling, and to precipitous destruction of America’s critical energy systems.

Save America, “B4” it’s too late.

Resources

nymag.com, “The Build Back Better Framework: The Good, the Bad, the Ugly.” By Eric Levitz; dtnpf.com, “Possible Tax Changes Hinge on Senate: Pro and Con: Tax Provisions in the Build Back Better Act.” By Chris Clayton; thehill.com, “The Build Back Better bill must die.” BY GRADY MEANS; ramseysolutions.com, “Biden Infrastructure Plan: How It Affects You and Your Money.” By Ramsey Solutions;

Common Sense and Ramblings In America

What Is Build Back Better, No Really?

The good.

The bad.

The ugly.

Possible Tax Changes Hinge on Senate

Pro and Con: Tax Provisions in the Build Back Better Act

What’s in Biden’s $1.2 Trillion Infrastructure Bill?

The Build Back Better bill must die

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The good.

The bad.

The ugly.

Possible Tax Changes Hinge on Senate

Pro and Con: Tax Provisions in the Build Back Better Act

What’s in Biden’s $1.2 Trillion Infrastructure Bill?

The Build Back Better bill must die

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