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- 46th and current president of the United States
When President Joe Biden first developed the Build Back Better plan during his 2020 campaign for president, inflation wasn’t on the minds of many Americans.
Now it’s a top concern. October saw a spike in consumer prices of 6.2% compared to the prior year, and polls show voters are obsessed with the issue as economists fear surging prices will continue well into 2022 if not longer.
Those concerns over inflation come as the Senate hopes to vote soon on the $2.2 trillion Build Back Better spending package, which the House approved last month. This bill has wide-reaching goals to increase health care coverage; boost social programs like universal prekindergarten and housing subsidies; and tackle climate change.
Despite claims from some Democrats, the bill is likely to add slightly to inflation pressures, says Marc Goldwein, an economist and senior policy director at the Committee for a Responsible Federal Budget.
“The effect is not likely to be large,” he acknowledges. However, he added, “Bottom line is it's likely going to boost inflation in the first few years relative to where it otherwise would be.”
However, his group has analyzed the legislation in detail and in a conversation with Yahoo Finance this week, he outlined a range of ideas for changes to lessen the impacts. Those tweaks include revamping the timeline of the bill so it spends less money upfront; changing the way child tax credits are paid; and rethinking a key tax deduction, among other changes.
Revamp the timeline
The CRFB calculates the Build Back Better Bill is largely paid for as it is currently written, adding $160 billion to the national debt over 10 years. But the bill is front-loaded with more spending in the first five years and more savings between years five and 10. The bill will add about $750 billion in debt over its first five years before it largely evens out, according to Goldwein's group.
“The easiest way to address that is don't add $750 billion to the deficit in the first five years,” he said. “I'm not saying it's got to be exactly budget neutral every year but closer to budget neutral in the first few years is going to make it less inflationary just by definition."
The goal would be to ease inflationary pressures and spending in 2022. After that, those inflationary pressures will hopefully ease as supply chain problems lessen, the pandemic subsides, and the Federal Reserve takes actions to ease inflation.
To meet this goal, Build Back Better should re-consider how it pays out an expanded child tax credit, according to Goldwein.
Traditionally, families have received this credit in a lump sum at tax time. However, a change enacted by the American Rescue Plan, which the president signed in March, made some of that credit monthly for 2021, meaning families receive checks of $250-$300 per child every month rather than that lump sum.
The payments have been massive in total — about $15 billion during one recent month — with money designed to be injected into the economy quickly. Goldwein says Biden’s initial proposal for how to extend the popular credit in 2022 was a "half and half" idea. Families would get half of the money in monthly installments and half in a lump sum at tax time.
But the latest version of the bill would pay out all the credit in installments over the course of next year, leading to billions of additional dollars flowing around the economy in 2022. Goldwein suggests reverting back to the White House’s half and half idea.
“That's reducing inflationary pressure because it means we're putting less cash in people's hands each month over the next year when inflation is still recovering,” he said.
Rethink the SALT tax deduction
Goldwein's group also suggests taking another look at the cap for the State and Local Tax (SALT) deduction, which is typically popular in high-tax states like California and New Jersey. The current proposal there would increase the cap from $10,000 to $80,000 through 2030.
As currently written, the SALT change would apply to 2021, meaning that in March and April of 2022 many people would be in line “to effectively get a gigantic tax refund they weren't expecting,” Goldwein said.
Goldwein would like to get rid of the proposed changes to the SALT cap entirely. But, failing that, he says, one idea for how to ease inflationary pressures in 2022 is “don't do it retroactively for 2021.”
It's found money, Goldwein says: “I think a lot of the literature is when you get a big unexpected bonus, you go buy stuff.”
Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.