Build Back Better/Reconciliation Bill: Public Investment vs Public Consumption

There are dueling estimates of the economic effects of H.R.5376, the “Build Back Better Act” or “Reconciliation bill.” Some analysts argue that it would increase growth, while others say the opposite. Identifying parts of the Build Back Better Act as “investment” does not necessarily mean that they are good, just as identifying other parts of the Act as “consumption” does not necessarily mean that they are bad. However, so identifying the components of the bill does serve a purpose. To the extent that budget watchers or economists want to know the effect of the bill as a whole on the economy, they must consider whether the dollars being spent will increase worker productivity or simply increase the well-being of the population. The issue is also important in evaluating the bill because it will take significant economic growth to generate sufficient tax revenue to cover the tab. It is in this context that this policy brief seeks to identify and measure the parts of the House bill that constitute investment, and those that improve citizen well-being in other ways but will not impact productivity.

To emphasize, H.R. 5376 has passed the House only; it must pass the Senate and the House in identical forms, and then be signed by the president. It is worth examining in its current form because there is at least some chance that it will become law with only relatively minor changes.