The current reconciliation bill will raise the deficit. Could it pass anyway?
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Hello everyone, I am Kimberly Adams. Welcome back to Make Me Smart, where we make today make sense. And I'm Nova Sopho. Thanks for everyone for joining us on the podcast and on the YouTube live stream on this Friday, June 20th. We're topping off the week with, topping off, get it? With a little economics on tap, which is our weekly happy hour episode. This week was all about the reconciliation bill, and it was a fascinating three episodes if you caught Monday through Wednesday. Now that bill, also known as the One Big Beautiful Bill Act...

And yes, all week we've been focusing on different aspects of that bill, which is a mouthful of a name, while answering questions from you, our listeners, along the way. Right, Kimberly? Yeah. And, you know, it was interesting because there was so much other news this week, and it's sometimes hard just to focus on one thing. But this is a really important piece of legislation, and there's so much in it. And, you know, with everything else going on, we really don't want it to get lost forever.

you know, some of the ways that this could impact folks. So thank you to everybody who sent in a bunch of really great questions, which we got on a variety of topics. And since we got such a variety of questions today, we're just going to do a bit of a grab bag of topics and answer those questions and then play, as nerdy as it sounds, a reconciliation bill themed

- Version of half full, half empty. - I can't imagine why you would think that that sounds nerdy. - I know, right? - What sounds nerdy about that? Absolutely nothing. - Nothing, nothing at all. But first we gotta do drinks. So Nova, do you have anything special that you're drinking today?

It's special for me, although it's not special to the audience for those long time listeners who are here every week because if I was here on another On Tap episode and also was drinking this, it's an El Maestro Sierra. I like to show off what I'm drinking. It's an Amontillado from my favorite Edgar Allan Poe short story. Yes. Tell us, you want to share that?

Oh yes, a cask of Amontillado. How does it start? A thousand ills had I borne from Fortunato, but when he verged on insult, I vowed my revenge. Anyway, tell me why you like this wine. Well, it's a sherry, and as folks who remember my previous stints on this show know that I am a huge fan of a certain show called Frasier, and

My friends and I always make the joke of sherry, Niles, sherry, Niles. He kept saying that all the time. Whenever they come home, they have a sherry. So therefore, I got to drink a sherry. And this is a particularly nice, relaxed sherry. You know, it's lightly flavored. It's not too powerful and overwhelming. And it's a very, very easy to drink drink.

Nice, nice. Okay. Well, I'm in the office today and I have not, we moved offices to a new location and we have not really, I haven't well stocked my office bar. Undisclosed? Where is this location? You want to tell everybody? I'll leave it undisclosed.

But what I did have in my drawer was randomly peach schnapps Not much you can do with peach schnapps on a quick deadline But so I put it into black tea and so it's black tea with peach schnapps, and that's what I'm doing today Good actually that sounds really actually is quite delicious. It's quite delicious, but let's see what everybody else is drinking in the chat Let's see

Our collier has a Midnight Supreme Alvarado Street Imperial Stout.

Let's see. Lucas is cooling down from the week with a cold, fizzy mead. Cheryl drinking the boring but necessary water. I love it. Yeah, well, we have so many questions to get through. I want to go ahead and get going on it because we've got a bunch of them. Okay, let's start with the first one. So we have a question from listener Sarah in Chicago, and I think it's a good one for you, Nova, because you've been hosting Marketplace Tech lately. So Sarah says...

I'm just curious if you all could say a little bit about the AI regulation ban that made it through the bill through the House and whether or not we may anticipate that that's going to make it through the Senate. So I'm just curious if there's been any additional Senate pushback on that particular regulation banning at the state level. Thanks so much. So the headline was,

answer to that question is the Senate hasn't come out with it yet, this provision. So we don't actually know what the Senate's going to do. There has been pushback. We've seen notably senators like Tennessee Senator Marsha Blackburn come out opposed to this. And I'll explain what it is first, and then you'll become clear why she in particular, why would a Tennessee senator oppose it? So what's this provision?

It says that states would not be able to regulate artificial intelligence for 10 years. It's essentially a ban on regulation at the state level of artificial intelligence. Now, what you need to know is that there have been a patchwork

of laws of various levels of strength. Not all of them have been worthwhile, frankly. But just in this year, really, there have been 28 states, according to the National Conference of State Legislatures, 28 states have enacted some form of AI law. And Tennessee actually, last year, I believe, enacted one. Now, think Tennessee. We're talking Nashville. We're talking country music.

the kind of global headquarters of country music, and they called it the Elvis Act. And essentially, this is actually very interesting. What they did is this act, you know, we know that artists' name, image, likeness is protected. You know, you can't just use that and reuse it without compensating the artist. They added voice. So at the state level, they said, you cannot reuse an artist's voice without compensation. Right.

This is squarely pointing at AI because we've seen AI be able to replicate a voice and then create new artwork with it. So what they're saying is hands off people's voices without compensation. And so these kinds of laws have been in patchwork. And Senator Ted Cruz from the Senate side actually has proposed some change that perhaps what they would do instead of outright...

ending a ban on artificial intelligence regulation completely, what they would do is they would set it as a condition to funding of a broadband Wi-Fi access. But they haven't really fully hashed that out.

um so that's that's what they're proposing and uh senator track cruz has said that you need this because um if you have a bunch of different laws of different strains and addressing different parts of ai the way ai works in 50 different states you're literally essentially holding back innovation in an industry that is just getting started and where where we are trying to

outrace China, which is racing us and trying to be the first to get degenerative artificial intelligence, agentic AI, and kind of own this new world that's coming. So that's the argument for it. The argument against is federalism, that we shouldn't be just immediately cutting off states from being able to regulate something that the federal government right now doesn't know how to deal with.

Right. And another big holdup on this element in particular is this idea of the Byrd Rule, which we talked about a little bit earlier this week. But it's this rule that says, you know, this stuff that's in reconciliation has to have a meaningful budget impact. It can't just be like a policy thing with the window dressing of a budget impact.

And so a lot of people think that this element in particular isn't going to make it through the birdbath. And the Senate has released kind of that new version that Nova was just talking about of making it conditional on funding to try to make this component adhere to the bird rule. But like the Center for Democracy and Technology is saying,

that the Senate revision acknowledges the House version did not adhere to the Byrd rule and they don't think this version adheres to it either. So there's a lot of skepticism that this is going to make it through the final process because it's a pretty big deal to basically put a ban on states doing anything for a decade.

And I thought it was interesting that on the House side, you're seeing opposition. Republicans are kind of there's some internal divisions here. You saw Marjorie Taylor Greene come out in a very famous now post online saying, had I known this was in the bill, I would never have voted for it. And should it come back to us with this in the bill, I will not vote for this. So there's a lot of internal divisions there.

All right, let's move on to the next question about the budget deficit. And this is from Ryan from South Jordan, Utah. And he asks by email, I don't understand how the big beautiful bill could get passed through reconciliation when it will increase the budget deficit. I thought the idea of budget reconciliation bills is that they were budget neutral. And Kimberly, this is your wheelhouse. Take it away. Yes.

You know, that was indeed the idea originally, Ryan, that, yeah, this was supposed to be budget neutral. And that way, if it didn't add to the deficit, you should be able to pass it without the supermajority that you need. And you can pass it on 51 votes, whatever. But things have changed over time. So I asked my buddy Laura Blessing, who's a senior fellow over at the Government Affairs Institute at Georgetown University, for questions.

How it happened that we went from this being something that was supposed to be budget neutral to where we are today, where it absolutely isn't. Whether reconciliation can be used to increase deficits is something that both parties have fought over, but also changed their minds about. In 2007, the Democrats created the Conrad rule to disallow this. And both the House and the Senate, in their own rules, have gone back and forth on this in the years that have followed.

Of course, we've seen major pandemic legislation under Biden increase deficits. So we've seen both Democrats and Republicans do this now, which is where things currently stand, that reconciliation can be used to increase the debt. Of course, both parties like spending money. They just like spending money on different things.

Yeah. So just to recap, policymakers have enacted 22 budget reconciliation bills since this process was established in 1974. Fourteen of those bills reduced the deficits, reduced projected deficits, I should say. That's important. But since 2000, six of the eight enacted reconciliation bills have actually increased the projected deficits. And on

Another note, whether or not this particular piece of legislation is going to increase deficits is a bit of something that has been debated over whether or not you should use something called the current law baseline or the current policy baseline for establishing how much this thing costs.

Oh, gee, it's very interesting that you mentioned that because we actually got a question on this from listener Ingrid in Vermont who asks by email, whatever happened to the use of current policy baseline for the bill? Did that end up happening? And this is Kimberly about, you know, what's a deficit is on the eye of the beholder. Yeah, I mean, tell us about what that means.

Yeah, so folks who've been listening to the show remember us talking about this and how absolutely wild it was. So usually when they're estimating the cost of how much a piece of legislation will cost, they will say based on what the law says, and in this case, when the law says the tax cuts will run out, having to put those tax cuts back in will cost X amount of dollars. That is the current law baseline. But Republicans have wanted to and effectively have in the case of this House bill,

use something called a current policy baseline where they're saying, well, since these tax cuts are already in place, let's just act like extending them doesn't cost anything. And so this is very controversial. Opponents are calling it a massive budget gimmick and it is

Going to be very interesting to see in the final version of this how it scored like the CBO has still been the Congressional Budget Office has still been talking about this in real numbers current law baseline So I'm going to read here what our wonderful producer menju pulled for us the use of the more traditional baseline the current law baseline to extend the expiring provisions of the 2017 tax cuts and jobs Act would cost something like 4.5 trillion dollars on paper but if they say that

you know, they're going to use the current policy baseline. It could, depending on some of these other provisions that they add in, end up costing zero dollars. But it's very controversial. The CBO doesn't really buy it. Democrats certainly don't buy it. And a lot of Republicans are basically calling it BS, too. And, you know, there is another number that I like to mention from the CBO's latest projections that I think gives a clearer answer to this question. And that is,

The CBO says that in a decade, based on if this bill passes, the amount of federal debt that the public would hold would increase by $3.3 trillion. And that's a real number. That is additional debt that we will have on the books.

based on the provisions of this bill. You can argue that that might be a worthwhile investment, perhaps. You know, the argument could be that there's going to be an economic boost that will be above and beyond that. But that is the actual number in terms of the projections. All right, let's take one more. This question comes from listener Christy in Atlanta.

I've heard that part of it is they want to start taxing private foundations. I work in nonprofit. We get a significant portion of our contributed revenue from private foundations, and I haven't really heard anybody talking about it. So I'm wondering if you can make me smart. Thanks. Yeah.

Okay, private foundations. What we're talking about here are foundations that are started by families, wealthy families, companies that start a foundation and they put a certain amount of money in it. That money gets invested and grows and that's how they then distribute funds to worthy causes, charities, whoever they think deserves that money, nonprofit organizations. Now, under current law, private foundations are subject to 1.39% tax on their investment income.

The investment income is their income, period. Under the version that the House passed, foundations, the amount they are taxed would increase for some foundations anything that's above $50 million, a foundation that's above $50 million. Now, granted, most foundations are probably going to be below that number.

But for those that are $50 million and above, they could see their tax double or they could see their tax almost quadruple. And I wanted to give you a hypothetical example, like a foundation that has a billion dollars in assets in it.

That's not that unusual amount. Let's say in a given year, they make 8% in earnings from their investments. Again, not an unusual number. That would be about $80 million in income they would have to operate, etc. If they were to pay tax under the current system, they would pay about a million dollars tax.

If they were to pay tax under this bill, if it becomes law in this current form, they would pay $4 million tax. That's an increase of $3 million. That's money that's not going to go to folks and charities and nonprofits. And so this is why this has become such an alarm bell for nonprofit organizations. And the National Council on Nonprofits sent out a letter, open letter to the Senate expressing their concern and saying this could make it really hard for nonprofit organizations to

function to access the funds they need and could harm people and communities that these nonprofits support. Now, this is, again, an issue where we don't have a proposal from the Senate yet at all. It's not just that there isn't a final proposal like in the previous issue. This one, there isn't anything. We don't know what the Senate is going to do at all. So it's still very much up in the air.

Yeah, there are so many components of this bill. And thank you, everybody, for sending in your questions. We are going to get to some more of them in Half Full, Half Empty, which is coming up after a quick break. We will be right back. Trading shouldn't have barriers. When Robinhood started, it was built to make trading more accessible.

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Okay, it's my favorite time of my favorite show of the week. It's game time. Today's half full, half empty will be a little different. We're going to base the game around things you all wrote about, specifically on the reconciliation bill. And Daniel Shin...

From Marketplace Tech, my colleague on that other show that we work on is here to host. Take it away, Daniel. Okay, starting with a heavy question based on a question from Judy in San Diego, California. Are you half full or half empty on the reconciliation bill proposing to limit the power of federal judges to hold people in contempt?

So this was such a controversial provision in the House bill. This is one that members of the House really heard it from their constituents when they went back to their states after passing the House version of the bill, where the reconciliation bill basically

included a provision that would have exempted Trump administration officials, or I guess presidential administration officials, from being held in contempt of court. It just absolutely blows up the balance of powers. And so a lot of people didn't read it and admitted as such.

when they are going through. And so the Senate Judiciary Committee has removed this component of it from the Senate version of the bill. But it added language that still does limit the power, the court's ability to issue temporary restraining orders and preliminary injunction, something that's being fought out at the Supreme Court at this very moment. So half full or half empty on this actually making into the reconciliation package.

I'm going to vote half empty on that one. Half empty as in the chances of it making it in the final package. I think I, it's hard to see how he would. And let's say it does. I wonder if it will be struck and struck down by the Supreme Court. The very judiciary they're trying to limit the powers of. It definitely gives unconstitutional. Let's look at the next one. Unconstitutional vibes. Yes. Perhaps.

Next question from Bob in South Florida. Are you half full or half empty on Senate Republicans actually listening to and adhering to what that pesky Senate parliamentarian says?

So I'm gonna save you from this one Nova because this is a deeply in my wheelhouse You guys talked about this a bit, right? Yeah, we did talk about this a bit earlier in the week that this is the person who gives the opinion about whether or not a certain component of the legislation actually adheres to the rules of Reconciliation is it related to the budget can't touch Social Security among other things and

I'm a little torn on this one. So, so far, the Senate parliamentarian has given rulings on a couple of things. Banking Chair Tim Scott had a proposed contribution to zero out the funding for the Consumer Financial Protection Bureau and to slash the pay for some Federal Reserve employees, to cut the Treasury Department's Office of Financial Research.

and dissolve the public company accounting oversight board. All of those, the parliamentarian said, no go. And they also she also said that the Republicans cannot eliminate a variety of Inflation Act reduction programs that they had targeted for repeal. And do I think they are going to adhere to it? I think so.

For the vast majority, if not all of them, that they will probably stick to what the Senate parliamentarian said simply to avoid drama and to move this more quickly is my guess. But what do you think? I'm going to defer to you. You're the expert on this subject. But I was surprised to find out that there's quite a bit of times when they haven't.

Considering the Senate being the deliberative body, them priding themselves on having all these rules that they follow, which helps slow things down, make them a little bit more, perhaps more thoughtful. I didn't realize that there were multiple occasions over the years where they've kind of listened and then jettisoned what the parliamentarian had to say. Yeah.

Yeah, looks like folks in the chat are very suspicious and thinking that the Senate is not going to listen. Or they should say Senate Republicans are probably not going to listen to what the Senate parliamentarian says. OK, Daniel, what's the next one? Inspired by a question from Ingrid in Vermont, are you half full or half empty on the reconciliation bill repealing the energy tax credits established by the Inflation Reduction Act?

well you guys have been talking about this a lot on tech yeah I think that the inflation reduction Act tax credits have become such an interesting topic of conversation because um even Elon Musk has been kind of appears to be break uh breaking on this issue he did as part of his break with the president this seemed to have been a key issue and I don't know I think it's uh I think it's a toss-up because a lot of people like these tax credits um I don't know what do you think

I think they're gonna end up saving the tax credits. Not only have a lot of constituents relied on them, a lot of businesses have. There are a ton of businesses that made really big investments based on what the IRA promised to do and they would definitely probably sue for that money and

And a lot of these clean energy tax credits benefit red states. And so you would literally, if you vote for those to go away, you'd literally be voting against money for your own state if you're some of these Republicans. So I think that they are going to be preserved in this legislation. I know there's like some debate over timelines for phasing them out. Either I think that timeline is going to be really, really long or they're just going to leave it alone altogether.

And that's kind of regardless of what the Senate parliamentarian says. So how did you phrase it, Daniel? And I'm not sure if I should say half full or half empty, given my answer.

Just basically the idea of the bill repealing those energy tax credits from the... So I'm going to go half empty on that because I think they're going to end up keeping them. Same, I do. I think because we're not just talking about like electric vehicle tax credits which people like, but we're also talking about like solar, right? And people be putting up solar power panels on their roofs. We're talking about companies, the implementation of a vast network of chargers, right?

So, and companies get- Heat pumps. Heat pumps, which is really just air conditioners that go backwards. The idea that we call them heat pumps is weird to me, but okay, whatever. Final question, I believe, and I believe this is also the one where you in the YouTube chat can-

Weigh in on the poll. Are you half full or half empty on this week in our deep dive into the reconciliation bill? Do we like this extended coverage of a topic in the news like this? This is a chance for the diehards who are on our live stream to have an outsized impact.

on our coverage plans. So vote away guys. On the future of Make Me Smart. What do you think? So get in there. And if you like it, what should we spend a week on in the future? What kind of stories are worth it? Ooh, that's an interesting question. Yeah. What could you spend a week talking about, Nova? Oh gosh. I can spend a week talking about everything. And business, it's such a, for us, it's such a nerdy and fascinating topic, right? Yeah. I don't know. Well, how about you?

I mean, I feel like I've probably spent the equivalent of a week talking about regulations on this podcast, Federal Regulations. Could probably do a week talking about anime, although that's not very... There's sort of a very loose connection to business and the economy from that, although somebody once suggested to me, I think it was either on Blue Sky or Discord, that I do a list of all of the different...

anime series that could teach us about the economy because there are actually quite a few that are very economic focused usually involving somebody like getting hit by a truck being reborn in another world and like using their knowledge of their previous life to reshape the economy and some I mean if I only had a dollar if I only had a dollar for every time that happened to me oh my gosh 90% half full they're all nerds like us which is great um

90 percent full, nine percent empty and one percent doesn't exist. I don't know. There's always that one percent. So Ryan Coleman says we could do a week on international politic. Jason Perringer says how else can you make me drunk or smart? Jin Peck says small business in the era of chaos. Rental costs, subsidies, freezes says friend of Charles. Oh

Aya Sanko says, "Campaign finance deep dive." That is interesting. Yeah, that's a good one. Lots of great ideas here. All right, we got to get out of here. We went long today.

So that is it for our week-long coverage of the reconciliation bill. Thanks for coming along for the ride, everybody. Next week, we are back to our normally scheduled programming, and we are going to do our regular Tuesday deep dive on, drumroll please, when tourism becomes over-tourism.

aka Louvre and the French protests over the amount of tourists there. So that'll be interesting to listen to. In the meantime, we want to hear from you. Let us know how we could help make you smarter because of course, none of us is as smart as all of us. And you know how to get a hold of us, but I'm going to tell you anyway, leave us a voicemail at 508-UBSmart. That's 508-UBSmart or email makemesmartatmarketplace.org. You have to bounce with the music, Nova.

Do you? Okay, I can do that. I've got some boobs. This episode of Make Me Smart was produced by Minju Park, who did amazing work all week on our reconciliation coverage with help from Courtney Bergseeker. And today's program was engineered by Charlton Thorpe.

The team behind our Friday game is Emily McCune, Jamila Huxtable, Antoinette Brock, Daisy Palacios is our supervising senior producer, or Grand Poobah. Nancy Fregali is our executive producer of Marketplace Shows, and Joanne Griffith is our chief content officer, otherwise known as the chief content poobah. She's in charge.

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