WILFORD: How Congress Made A Single Regulation ‘Pay For’ Five Major Bills

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Andrew Wilford Contributor
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Like Charlie Brown preparing to kick the football once again, Senate Democrats have begun to put together yet another version of Build Back Better. To start, they apparently are all in agreement about using one of the most egregious and recurring budget gimmicks once again.

Back in 2019, the Trump administration finalized, but did not implement, a new rule that it hoped would result in reduced prescription drug prices. Three years later, this wonky regulatory change has already “paid for” four separate significant bills that have passed the House, and two that were signed into law, under the arcane budget rules Congress operates under.

So how does a regulatory change “pay for” anything at all? Well, experts aren’t exactly sure how drug prices would be affected by the change, which involves eliminating safe harbors in anti-kickback laws in order to prevent pharmacy benefit managers from increasing list prices so that they can then offer greater “discounts.” But if it made drug prices go up, the federal government would end up paying more for Medicare and Medicaid drugs, while the opposite would be true if it resulted in drug prices going down.

Consequently, an outside consulting firm told the Congressional Budget Office (CBO) that the rule change could either increase federal spending by $139 billion over ten years or it could reduce spending by almost $100 billion over that same time period. Despite this extreme uncertainty, the CBO estimated that the drug pricing rule would cost the federal government $171 billion over ten years.

Soon after, Congress figured out that it could conjure money up out of thin air simply by further delaying the implementation of this rule. Since then, it has done so over and over, most recently with Senator Manchin’s last proposal.

That’s because in the world of federal budgeting, saying you will spend money then changing your mind at the last minute means that you just created new savings to spend elsewhere. By repeatedly delaying implementation of this rule that the CBO has said will cost the federal government a significant amount of money, Congress has enjoyed a boundless source of money with which to pay for whatever they want.

To understand the absurdity of how Congressional budgeting works, imagine that you have $60,000 in the bank and you decide to buy a new $55,000 car. If you are talked out of this expensive decision, you would consider your financial situation to be unchanged from where you started.

But not Congress. To Congress, when you decided to buy a $55,000 car, that decision got locked into your “budget baseline.” Meaning that the moment you decided not to buy the car, you have “saved” $55,000 that you can spend elsewhere without increasing your deficit.

And even this analogy doesn’t do the situation justice, because Congress operates on ten-year budget windows. For a change like the drug pricing rule, each ensuing year adds another year’s worth of “savings” that Congress can glean from delaying the rule’s implementation. In other words, it can be used to create money for Congress … forever.

Already, delaying the rule’s implementation was used, among other gimmicks, to call last year’s bipartisan infrastructure bill “deficit-neutral.” But it was also used to “pay for” other legislation that passed the House, including the original Build Back Better bill and the Affordable Insulin Now Act. Most recently, delaying the rule’s implementation to 2026 allowed Congress to “pay for” the bipartisan gun bill.

If there’s one silver lining, it’s that the latest Senate bill eliminates the rule permanently, making this the last time this particular gimmick could be used. But the drug pricing rule is just one of many gimmicks Congress uses to game the budget math, and Congress has a bevy of others to call upon.

Budget process reform is desperately needed to stop the use of these phantom pay-fors and gimmicks and restore some common sense to federal budgeting. Without it, our enormous national debt will continue to grow and grow while politicians use shoddy budget math to brag about being fiscally responsible.

Andrew Wilford is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government.