There’s No Such Thing as Free Money

Have you ever gone shopping for a car and been told the base price was X dollars, but with add-ons it will cost 15% more? That’s when the haggling starts.

President Joe Biden is pitching to Congress a $3.5 trillion package of social programs called the Build Back Better Act, which would tax corporations and wealthier Americans to expand Medicare to cover dental, vision and hearing services; allow the federal government to negotiate lower prescription drug prices for the elderly; pay for free community college; subsidize childcare and family leave; and establish electric-vehicle incentives.

However, Sen. Joe Manchin (D-W.Va.), who may be the deciding vote on the bill, has made it clear that his base price is $1.5 trillion. But our creative lawmakers might not have to cut any add-ons to meet Manchin’s number.

Congress could simply shorten the timeframe for all the programs in the $3.5 trillion package. For example, if childcare tax credits were to last 10 years, legislators might have them lapse after three years. Ditto for family leave, free community college tuition and the rest.

It would be like a test drive. If Americans don’t like the programs, Congress doesn’t renew the lease in three years. But if the public does like them, it will insist on keeping them, and eventually the $1.5 trillion piece of legislation will cost $3.5 trillion and more as Congress continues voting to reauthorize the spending. It would take an extraordinarily brave legislator to do otherwise.

States might also need an infusion of courage. Many Build Back Better programs would be administered by individual states, much like existing Medicaid plans for the poor. Each state administers its own Medicaid program following federal guidelines, and the federal government contributes 50% or more to each program. In 2019, the federal government paid for 64% of Medicaid costs while states paid 36%.

In 2014, the federal government via the Affordable Care Act (“Obamacare”) offered to expand Medicaid coverage for each state’s population. If a state expanded the eligibility, the federal government subsidized 100% of the cost for each new recipient for at least three years. Sounds like a great deal. But states that took the money now face a dilemma. The federal subsidy was cut 10% in 2020. States had to make up that funding gap or reduce eligibility. Nearly all chose to keep expanded eligibility, and Medicaid funding has become the fastest growing part of many state budgets.

The same could happen with the Build Back Better Act. Some programs may require matching state dollars. Some will require no matching now, but federal funding might diminish or end later. Either way, state lawmakers could face difficult budget choices in the future concerning cutting these programs.

Get ready for it. The haggling has already begun.