Concept_DC_Capitol Building

Will Thanksgiving Appropriations Be Stuffed with Debt?

Having just enacted a continuing resolution last week to extend current government funding through November 21, policymakers must now work toward the enactment of more permanent funding before the Thanksgiving break. It is disappointing that stop-gap measures are increasingly used to fund the government rather than full-year appropriations, but a year-long funding deal could be an even bigger fiscal threat. Having already added $1.7 trillion to projected debt through their recent discretionary spending caps deal, a late year appropriations package could be used as a vehicle to add anywhere from $135 billion to $2.2 trillion more.

If Congress continues recent practices for dealing with outstanding tax and spending issues without offsets, we estimate it will cost $135 billion over the next few years and set the stage for $890 billion over a decade. If they pass other policies currently under consideration, it could cost as much as $2.2 trillion.

Policy Temporary Cost Permanent Cost
Revive expired and expiring "zombie" tax extenders $35 billion $220 billion
Delay or repeal the "Cadillac tax" on high-cost health insurance plans $30 billion (two-year delay) $200 billion (repeal)
Rely on CHIMPs and the HMTF to circumvent discretionary caps $25 billion $165 billion
Delay or repeal various health-related taxes from the Affordable Care Act $15 billion $190 billion
Debt service cost of enacting all policies $30 billion $120 billion
Subtotal, Cost of Continuing Recent Policies $135 billion $890 billion
Other Possible Policies:    
Enact other Ways and Means package (mostly EITC and CTC expansions) $140 billion (two years) $590 billion
Repeal SALT deduction limit $70 billion (one-year repeal) $500 billion (repeal)
Implement multi-employer pension solvency package $65 billion $65 billion
Debt service of enacting above policies $90 billion $175 billion
Possible Total, Worst Case Scenario with Interest Up to $500 billion Up to $2.2 trillion

Source: CRFB estimates based on Congressional Budget Office and Joint Committee on Taxation data. Numbers are rounded to the nearest $5 billion and may not add due to rounding.

Expired Tax Extenders – As we've written on extensively for the past few months, some lawmakers hope to revive various tax measures known as "tax extenders" or #ZombieExtenders, most of which expired almost two years ago at the end of 2017. Reviving these provisions along with a few that expired in 2018 and extending others that will expire this year through the end of 2020 would cost $33 billion before interest, while making them permanent could cost $230 billion over a decade. Reviving provisions retroactively would add complexity to the tax code and do virtually nothing for the economy. As a dozen organizations from across the ideological spectrum wrote in a letter to Congressional leadership, these extenders are bad tax, fiscal, and economic policy, and lawmakers should reject any efforts to revive them.

CHIMPs and HMTF Gimmicks – Despite having increased discretionary spending caps by $169 billion in 2020 alone, policymakers may still rely on gimmicks to further increase discretionary spending. One common gimmick is to rely on phony changes in mandatory programs (CHIMPs), which appear to reduce spending on the mandatory side of the budget in order to pay for actual increases on the discretionary side. In reality, most of these CHIMPs often result in little or no actual savings. Still, we expect policymakers will spend the entirety of the current $15 billion limit on phony CHIMPs. Likewise, some policymakers have floated moving spending from the Harbor Maintenance Trust Fund (HMTF) to be exempt from the spending caps, which would free up $9 billion of built up reserves in the fund followed by an extra $1.5 billion annually afterwards. This would essentially allow appropriators to spend an extra $1.5 to $2 billion annually within the caps.

Cadillac Tax Repeal In July, the House voted 419-6 in favor of repealing the "Cadillac tax" on high-cost health insurance plans without any means of making up for that lost revenue. This repeal would increase private health care costs, reduce wages, and cost $200 billion over the next decade. We estimate another two-year delay of the tax, which is scheduled to go into effect in 2022, would cost $30 billion. Recently, several experts at the Committee for a Responsible Federal Budget joined a group of nearly 100 health and budget economists and analysts from across the ideological spectrum opposing such a repeal without a proper alternative, such as a limit on the tax exclusion of employer-sponsored health insurance.

Additional Health Tax Delays – Two other health taxes could be delayed in an appropriations deal: the health insurance provider tax and the medical device tax. The health insurer tax is a fee that insurers must pay based on their net insurance premiums, which is roughly proportional to their market share. The tax was in place from 2014 to 2016, was put on hold in 2017, resumed in 2018, and was put on hold again for 2019. Importantly, insurers set premiums around September every year, so any 2020 insurer tax is likely already priced into premiums for the upcoming year. The medical device tax is a 2.3 percent excise tax on sales of medical devices. It was in effect from 2013 to 2015, after which it was delayed for two years and then delayed again another two years. Both taxes could be temporarily repealed again or permanently repealed. One-year delays would cost around $2 billion and $13 billion each for the medical device tax and health insurance provider tax, respectively. Permanent repeals would likely cost $20 billion and $175 billion, respectively.

Other Fiscal Threats – In addition to the above policies that have specific deadlines, it would not be unusual for lawmakers to sneak in other priorities in this must-pass legislation. For example, the House Ways and Means Committee approved legislation to temporarily expand the Earned Income Tax Credit, the Child Tax Credit, and other provisions at a cost of roughly $140 billion, which would grow to $590 billion if made permanent. Likewise, the House passed a bill in July that would bail out multi-employer pensions that are facing looming insolvency, at a gross cost of roughly $65 billion over the next decade. Finally, lawmakers are considering adjustments to the $10,000 limit on the state and local tax deduction. Eliminating the limit entirely would cost upwards of $500 billion over the next decade before the cap expires after 2025, while a one-year moratorium would cost around $70 billion.

***

Over the past three years, lawmakers have added more than $4 trillion to projected debt. They shouldn't use a must-pass package this November to add even more. It's time to stop the fiscal free-for-all and instead focus on paying for priorities, shifting attention to the soon-to-be urgent financial problems facing Social Security and Medicare, raising revenue, and ultimately putting the debt on a sustainable path.