What Would the President's Budget Look Like With Build Back Better?
The President's Fiscal Year (FY) 2023 budget proposal released last week omits details on the core of the President's agenda, the Build Back Better plan, in favor of a "deficit-neutral reserve fund." While the omission was done to allow room for negotiations with Congress, it obscures the total spending and revenue in the budget and may also impact total deficits. Assuming the House-passed Build Back Better (BBB) Act as part of the budget, the President's plan would include roughly $3.2 trillion of total spending increases and $3.9 trillion of revenue increases, enough to boost spending and revenue by about half a percent of Gross Domestic Product (GDP) above what is reported. Debt would also be about 1 percent of GDP higher in 2032. Other versions of Build Back Better would have different implications and could even lead to lower debt levels by the end of the decade.
Though the budget includes numerous tax and spending initiatives, the budget also emphasizes the President's support for most of the provisions from Build Back Better, including proposals to combat climate change, support affordable child care and long-term care, expand health insurance coverage, offer paid family and medical leave, provide universal pre-K, revive a variety of expanded tax credits, lower drug prices, and raise taxes on corporations and high-income households, among other changes. These policies are all captured within a non-specific deficit-neutral reserve fund.
Though it is impossible to know exactly what the President envisions including in that placeholder, this analysis considers three possibilities. First, we analyze the budget assuming revenue and spending changes similar to the House-passed Build Back Better Act - roughly $2 trillion of new initiatives and $2 trillion of offsets. Second, we analyze the budget assuming the House-passed offsets with only half the money spent on deficit reduction - roughly $1 trillion of initiatives and $2 trillion of offsets. And third, we analyze the budget assuming about half the offsets from Build Back Better, with half of that funding new spending - roughly $500 billion of new initiatives and $1 trillion of offsets.1
As written, the President's budget includes roughly $1.7 trillion of new initiatives, $2.6 trillion in offsets, and $95 billion in interest savings. Assuming the House-passed Build Back Better Act as part of the budget (but excluding any State and Local Tax (SALT) deduction cap changes), we estimate the budget as a whole would include $3.8 trillion of new initiatives, $4.6 trillion of offsets, and only $40 billion of interest savings. In our other two scenarios, new initiatives would total $2.2 to $2.6 trillion, offsets would total $3.6 to $4.6 trillion, and interest savings would be $140 to $180 billion.
|Category||President's Budget||With House BBB||With Deficit-Reducing BBB||With Scaled-Down/Deficit-Reducing BBB|
|Initiatives||$1.7 trillion||$3.8 trillion||$2.6 trillion||$2.2 trillion|
|Offsets||$2.6 trillion||$4.6 trillion||$4.6 trillion||$3.6 trillion|
|Interest||-$95 billion||-$40 billion||-$180 billion||-$140 billion|
|Total||-$1.1 trillion||-$820 billion||-$2.1 trillion||-$1.6 trillion|
Source: CRFB calculations based on Congressional Budget Office and Office of Management and Budget data. Negative numbers for interest and total mean interest savings and deficit reduction. Numbers may not add due to rounding. See footnote 1 for more details on each scenario.
These scenarios would also have different implications for spending, revenue, deficits, and debt.
The President's budget as written has spending averaging 23.4 percent of GDP over the next ten years and revenue averaging 18.8 percent of GDP, netting average deficits of 4.7 percent of GDP. The spending and revenue totals are higher than the Administration's baseline averages of 23.0 percent of GDP for spending, 18.0 percent of GDP revenue, and 5.0 percent of GDP for deficits. If the President's budget included the House-passed version of BBB - which significantly increases spending on social programs and climate change mitigation while increasing taxes and reducing prescription drug costs - each of these numbers would be higher due to the bill's increases in spending, revenue, and deficits. Spending would average 24.0 percent of GDP over ten years, while revenue would average 19.3 percent of GDP. Deficits would be less than 0.1 percent of GDP higher and still round to 4.7 percent of GDP.
|Scenario||Average Spending||Average Revenue||Average Deficit||2032 Debt|
|Budget with House BBB||24.0%||19.3%||4.7%||107%|
|Budget with Deficit-Reducing BBB||23.6%||19.3%||4.3%||104%|
|Budget with Scaled-Down Deficit-Reducing BBB||23.6%||19.1%||4.5%||105%|
Source: CRFB calculations based on Office of Management and Budget and Congressional Budget Office data. Numbers may not add due to rounding. See footnote 1 for more details on each scenario.
Recent discussions around BBB have indicated that it would be scaled down from the House version and deficit-reducing, and the budget itself states that "the President is committed to reducing deficits with this legislation." A full-sized deficit-reducing version of BBB would still have higher revenue but spending closer to the budget and lower deficits and debt. Spending would be slightly higher than the budget at 23.6 percent of GDP, revenue would average 19.3 percent of GDP, and deficits would average 4.3 percent of GDP. A scaled-down and deficit-reducing BBB would look very similar to the previous scenario but with slightly lower revenue and slightly higher deficits.
These different scenarios would also affect debt levels over time. The President's budget would result in debt rising from 102.4 percent of GDP this year to a record 106.7 percent by 2032, though this is lower than the baseline projection of 109.6 percent of GDP. Including the House-passed BBB would increase debt by less than a percentage point to 107.4 percent of GDP. A full-sized deficit-reducing BBB would result in debt of 103.9 percent of GDP, while a scaled-down deficit-reducing BBB would result in debt of 105.3 percent of GDP.
Putting in a placeholder for Build Back Better obscures the total effect of the budget and its effect on debt.
1 Specifically, the House BBB bill includes roughly $2.2 trillion of new initiatives and $2 trillion of offsets excluding SALT cap changes. The second scenario uses the same offsets but only contains about $1 trillion of climate spending and tax breaks and other social spending. The third scenario contains $1 trillion of offsets using the same year-by-year path as the House BBB bill and $500 billion of climate spending.