Build Back Better 'will have to change' to pass Senate, expert explains

American Action Forum Director of Fiscal Policy Gordon Gray joins Yahoo Finance Live to discuss the Build Back Better plan as it heads to the Senate.

Video Transcript

- The House, today, passed President Biden's nearly $2 trillion economic plan, but his Build Back Better measure faces an uncertain fate in the Senate. Here to talk about it, is the director of policy at American Action Forum, Gordon Gray. So Gordon, we know Joe Biden has been saying that his Build Back Better program is going to cost zero dollars. Those are his words. The Congressional Budget Office coming back and saying, you know, not so much. It's going to add to the debt, it's going to add to the deficit. Is this plan in your mind a budget buster?

GORDON GRAY: First, thanks so much for having me on, and you know, the-- the notion of a budget buster is certainly in the eye of the beholder. So I think, what I would just say is, the bill was supposed to be paid for. The Congressional Budget Office told us that it would add about $367 billion to the deficit over the next 10 years. Now, certainly, compared to recent fiscal policies, $367 billion isn't all that much in the face of $6 trillion that we've spent recently. But a couple hundred billion here, a couple hundred billion there, you start to talk about some real money here. So I'd like to see to the extent that Democrats want to move forward with this. I'd like to see it paid for and it's not.

- So the-- the idea that it would be paid for by revenue from raising taxes on the wealthiest Americans doesn't seem to get the job done.

GORDON GRAY: Well, fundamentally, is this bill was clearly-- and you know, we saw sort of a lot of the political negotiations, the intro-party negotiations going on, is this was a-- a political compromise among house Democrats. We already know that the bill is going to have to change when it goes to the Senate, so the composition of it remains uncertain. And so to achieve the compromise that was necessary to get it through the House, they had to arrive at this particular package of-- of taxes and spending, and it just was the case that the political consensus wasn't such that they could raise enough taxes. Some of these taxes are unpopular, and the consensus, the deal, was-- was this. And we're left with a bill that isn't paid for. And when it comes to the Senate, we'll see what they do.

- And we know that Senator Manchin, who is a Democrat, but who has been very vocal about not wanting to back this measure as it stands, keeps talking about how it's just going to add to the inflation rate, which we know we're now looking at prices their highest in about 30 years. So if you were to pick and choose what survives and what doesn't in this measure as it heads to the Senate, what are some of the key points?

GORDON GRAY: You know, so I think, and you just pointed pointing out a key consideration, which is there is some nervousness among some Senate Democrats about particularly the structure of this bill, which is really front loaded. So in the first five years, you get almost $800 billion in deficit spending. And I think, you know, as people are looking into the holidays and a little bit concerned about inflation, I think some other members may get a little cautious about having such an un-upfront architecture. And a big part of that is the state and local tax deduction. I don't see a tremendous appetite for that over in the Senate. You've already heard some members of the Senate expressed some concerns about that. That was essential to getting it through the House. It's not a priority in the Senate. And so I think that's one of the first challenges. And that helps them in terms of the composition of the budgetary consequences here. It's a really expensive provision. It's the most expensive single provision in the bill. So in the Senate, they get rid of that, they'll have some more room to play with. Senator Manchin also talked about paid leave, so that one could be in jeopardy. But on the other hand, you have Senator Sanders talking about adding more benefits. So there's a lot that's in the mix here. And what's clear, is that the bill that the House passed is not going to be the bill that the Senate passes, if it passes it at all.

- And what about some of the things in this bill, actually quite a few things, have a time limit on them, right? I mean, there are these green energy subsidies that would happen up front, I think for 2022 at the very least. But then they run out. So the question becomes will they continue those subsidies, and if so, who's going to pay for them?

GORDON GRAY: Exactly. And so that's actually a time honored budget gimmick here in Washington D.C. This certainly isn't the first bill to do it, but you have very expensive policies in here that sunset after in some cases, a year, in some cases five years, in some cases six years. The child tax credit is one, green subsidies are another. Universal pre-K is another. And it's simply a function of just wanting to match the costs with the assumption that in a few years time, you could just extend them. And so right now, it's a bit of an effort to just hide the true cost of the Bill-- of the policies themselves.

- Do you think that there would come a time as these things sort of these different measures in the bill sunset, as you say, that Democrats are going to look to middle class tax hikes? You know, to pay for the continuation of these spending programs?

GORDON GRAY: Well, you know, I think that's one of the lessons of this bill itself, is that, you know, for years, we've-- we've heard from progressives of the desire to raise taxes on billionaires and millionaires. But now, that progressives have the White House, the House, and the Senate, and they have the opportunity through the reconciliation process to pass legislation without Republicans, they have the opportunity to do just that, and it's proven very difficult. And so I think the lesson here, is that you know when we eventually do try to wrap our arms around the unsustainable fiscal trajectory that we're on, is that, you know, it's going to be very difficult to raise taxes on the middle class. And so I think that worries me, in general, that we don't have the ability to address our fiscal situation to the extent. The taxes in this bill are the easy ones. I'm concerned that we're using them to pay for new spending, and then, only partially pay for it.

- All right. Well, certainly, not a slam dunk in the Senate for sure. Gordon Gray of the American Action Forum, thanks for being with us.