No, The $3.5 Trillion Spending Bill Does Not Cost $0

Economists are attuned to our terms being bastardised by politicians. In the mouths of presidents and Congress, “investment” is widely used as a synonym for “spending.” “Infrastructure” today seemingly means any social policy Democrats think is worthy. A carbon tax was recently dubbed by White House spokeswoman Jen Psaki as a “corporate polluter fee.” And in the most shameless dictionary land-grab of all, President Biden, Nancy Pelosi, Ron Klain, and Psaki have repeatedly tried to redefine what we understand by the “cost” of the reconciliation bill—claiming that a $3.5 trillion bill actually costs “zero” dollars because it is fully “paid for” by tax increases.

Democrats are, in essence, saying that the “cost” of the overall package of spending and tax hikes is its net impact on the federal budget deficit. If a gross tax cut is $900 billion but there are offsetting provisions to raise revenue by $300 billions, we sometimes do say the net “cost” to the U.S. Treasury in forgone revenues is $600 billion. So, they contend, if there’s a $3.5 trillion spending package and $3.5 trillion raised in revenue to pay for it, isn’t the equivalent “net cost” of the package “zero dollars”?

That framework, if not the numbers, has convinced many journalists. In a “fact check,” the Washington Post’s Glenn Kessler has questioned Biden’s assertions on what the deficit impact will be. Some modeling from Penn Wharton has suggested the combined spending and revenue package would result in $1.75 trillion in additional borrowing over 10 years, Kessler says. But while Kessler rightly queried whether the reconciliation bill was truly deficit neutral, he didn’t question the president on whether the deficit impact really represented the bill’s “cost.” 

Anyone who has ever bought anything knows that the “cost” of something is not the net effect on your debt balance. If you bought $85 worth of groceries and paid from your debit account, you wouldn’t claim the cost of the purchase was zero. If you spend $85 on groceries, that’s $85 less you have to invest, or to spend at the movies or in restaurants. Clearly, that out-of-pocket cost is real to you—it’s a reasonable proxy of the monetary value of what you give up to make the purchase.