The American Rescue Plan: Is it $1.9 Trillion or $3.5 Trillion?

Congress is on track to enact what is being advertised as a temporary injection of $1.9 trillion in emergency COVID-19 relief. But what if the package turns out to cost $3.5 trillion?

The administration’s American Rescue Plan (ARP) is moving under expedited legislative procedures. President Joe Biden laid out a two-step economic plan shortly after being sworn into office. First, to rescue the country from the depths of the pandemic crisis. Second, to “recover” the economy and build back better than before.

The Congressional Budget Office recently estimated that the House-reported bill would increase spending by $1.92 trillion over the next decade and reduce revenues by $33 billion over the same period. This assessment, however, masks what is likely to become the true cost of the legislation over the next decade.

In the world of federal budgeting, what really matters is not the one-year cost or savings of enacted legislation, but the multiyear impact of policies on the federal ledger. It is a time-honored, bipartisan practice to diminish the apparent costs of tax cuts or new benefits by “sunsetting” the provisions. However, once these desirable provisions are enacted, Congress rarely takes them away, particularly when the benefits are enjoyed by a large swath of the country or a broad set of business interests. The annual extension of numerous tax expenditures are a case in point, as are the Bush tax cuts (which were mostly made permanent). Many key provisions in the 2017 Tax Cuts and Jobs Act are set to expire in the coming years. It is highly unlikely they will all be allowed to lapse.

The extension of these popular programs is a major reason federal deficits and debt are expected to grow into the future. As the Urban Institute’s Gene Steuerle has written: “never in our history have so many dead and past office holders had such an impact on the course of the country’s fiscal future.”

If past is prologue, several short-term programs in the $1.9 trillion package are likely to be extended at considerable added cost.

First, it should be noted that of the $1.9 trillion, CBO projects that approximately two-thirds will be injected into the economy over the next seven months. The other one-third will stretch out over the next nine years—through the end of the decade. Indeed, fully $250 billion will be spent beyond the end of 2022. It may be a stretch to call those funds expended after 2022 urgently needed for the current crisis at hand.

Second, many of the major spending and tax provisions sunset at the end of calendar year 2021. Ostensibly this is because the pandemic will have subsided and the rescue will have been completed. However, it is easy to see how many one-time provisions may be extended beyond the end of this year, regardless of the state of the economy. Examples include:

• Child Tax Credit. The expansion of tax credits (a “child allowance”) to families with children sunsets on December 31, 2021. This one-year provision is estimated to cost $109 billion. After providing this support to families, it will be challenging for Congress to let it expire at the end of this year. Extending this provision for the remainder of the decade will conservatively add roughly $1 trillion to the real cost of the ARP.
• Earned Income Tax Credit (EITC). Similarly, strengthening the EITC for individuals will sunset on December 31, 2021. Once “strengthened,” why would legislators decide after this year to “unstrengthen” EITC benefits? Extending the additional EITC benefits to the end of the decade would add $250 billion to the real cost of the bill.
• Health Care Premium Tax Credits. Improving the affordability of health insurance sold on the market exchanges will sunset at the end of 2022. Reversing these subsidies for families purchasing health insurance, and therefore increasing their costs—or worse, possibly resulting in no health insurance—would not be a prudent political calculation during a congressional election year. Extending the subsidies would add roughly $300 billion to the real cost of the ARP.
• COBRA Continuation Coverage. Under current law, individuals choosing to enroll in COBRA health insurance coverage after losing employment may be required to pay up to 102% of their health care premium previously paid by their employer. ARP would reduce that to 15% through September 2021. With unemployment projected to remain elevated throughout 2022 and possibly beyond, it seems unlikely that this provision would be allowed to expire. Costs from extending this provision would likely fall between $10 billion and $50 billion over the next decade.

These provisions alone would add nearly $1.6 trillion, over 10 years, to the $1.9 trillion advertised ARP price tag, bringing the likely true budgetary impact to $3.5 trillion. While these are important programs – many enjoy bipartisan support — a rushed, partisan process is not an effective approach to develop lasting policy.

The imperative to move with urgency can also result in poorly crafted measures that prevent states and local governments from obligating the resources. In the race to get legislation adopted, Congress must avoid burdening states with convoluted requirements and arbitrary deadlines that will either prevent resources from being deployed or compel states to spend them inefficiently.

Once President Biden signs the ARP into law as his first major accomplishment of the 117th Congress, public focus will turn to the second step, building back better. It is critical that the administration and Congress balance the immediate imperative for emergency relief against the investments required to restore jobs and build a dynamic, environmentally sustainable, and globally competitive economy.

G. William Hoagland is a senior vice president at the Bipartisan Policy Center. He is the former staff director of the Senate Budget Committee and an original employee of the Congressional Budget Office.