CBO Director Called Mild Tax Hikes Proposed by Obama “Class Warfare”

The Republican economist, Phillip Swagel, is now playing an outsize role in the enactment of Biden's agenda.

Congressional Budget Office Director Phillip Swagel testifies before a House Appropriations subcommittee during a hearing on Feb. 12, 2020, in Washington, D.C. Photo: Sarah Silbiger/Getty Images

Early in his administration, amid backlash to the Affordable Care Act and the rise of the tea party movement, President Barack Obama pivoted toward austerity, culminating in a series of bipartisan negotiations aimed at cutting spending and bolstering revenues. “Washington has to live within its means,” Obama declared in 2011, pushing for a sweeping proposal to slash trillions of dollars from the federal deficit over the following 10 years.

The proposal, which included hundreds of billions of dollars in cuts to Medicare, Medicaid, federal pensions, and a host of other components of the social safety net, called for gutting federal spending by $2 to $3 for every $1 raised by tax increases on wealthy Americans and large corporations.

For many right-wing economists, Obama’s vision of austerity was not enough. One economist in particular, Phillip Swagel of the American Enterprise Institute, panned Obama’s plan. Swagel dismissed the lopsided mix of spending cuts and tax increases — a mix that would likely be seen as draconian by today’s standards — as “politics, not economics” and argued that the tax provisions in the president’s plan were a ploy to enable more federal spending in the future.

Asked by Gwen Ifill on PBS NewsHour in September 2011 if the proposal amounted to “class warfare” against wealthy Americans, Swagel responded simply: “Yeah.” Ultimately, the talks fell apart when conservative House Republicans refused to accept any tax hikes on the rich, sparing Social Security and Medicare from Obama’s scalpel.

Swagel, a prolific academic and policy analyst who’s spent his career in and out of Republican administrations and right-wing think tanks, is now set to play a pivotal role in the fate of President Joe Biden’s Build Back Better Act. As the director of the Congressional Budget Office, Swagel has broad authority over the agency, which has become increasingly influential because of its key role in the reconciliation process — a complex and arcane legislative pathway that bypasses the Senate filibuster but mandates that proposed legislation be deficit-neutral or deficit-reducing after a 10-year window, as determined by a CBO analysis.

Before the bill can reach the Senate, however, it must first clear the House, where a group of conservative House Democrats have said they will vote for the legislation after seeing the CBO score, parts of which have already been released. They have promised to vote on the bill by the end of this week. The CBO has announced that it expects to have all provisions within the legislation scored by Friday, and House Majority Leader Steny Hoyer has said the House vote could happen as early as Thursday, assuming that conservative Democrats go along.

In a letter explaining their position, the group seemed to invoke the CBO as a neutral authority. But budget scoring is a highly subjective practice that, in the past, has tended to produce estimates that vary wildly from the actual budgetary effects of a policy once enacted. And Swagel, whose history indicates a deep antipathy for investments in social programs and climate resilience, has the power to help steel the spine of conservative Democrats looking to weaken the boldest climate action and largest expansion of the social safety net in a generation.

It has been more than 10 years since Swagel called Obama’s deficit-slashing proposals class warfare, and the moral panic that deficit hawks induced in the early 2010s has largely faded, though concern over inflation remains. The United States has spent trillions of dollars containing the fallout of the coronavirus pandemic, and after passing the largest boost to infrastructure spending in a generation, Congress is now turning to a nearly $2 trillion package that contains the remainder of Biden’s agenda. The consensus among mainstream economists has shifted so much that the prevailing view these days is that Obama’s primary mistake in his first term was spending too little on economic recovery and that proposed cuts to Medicare and other essential programs became so toxic that Republicans failed to generate the momentum to seriously consider lower funding levels when they controlled all of the levers of government in 2017 and 2018.

What has been slow to change, however, is the outsize influence that deficit hawks wield at the key choke points of policymaking.

Swagel — a longtime fixture in the world of conservative economics who served as assistant secretary of the treasury for economic policy under President George W. Bush in the years leading up to the global financial crisis — was appointed to his four-year term as CBO director in June 2019. His selection was led by then-Senate Budget Committee Chair Mike Enzi and approved by House Budget Committee Chair John Yarmuth before being sent to House Speaker Nancy Pelosi and Senate President Pro Tempore Chuck Grassley for official nomination. Swagel’s appointment, which Democrats were technically free to oppose but did not, followed a tradition in which the House and Senate Budget Committee chairs alternate between making the selection and allowing the other wide latitude when it comes their turn to choose.

A review of Swagel’s writings and public comments during his last 20 years in public life reveals a conservative intellectual who has struggled to adjust to the changing economic consensus, and it calls into question the wisdom of the Democrats who enabled his appointment without any meaningful resistance.

During his time as a researcher and visiting scholar at the American Enterprise Institute, a conservative think tank known for its fierce opposition to government programs and financial regulation, Swagel authored articles decrying the modest expansions to the welfare state and financial regulatory system that Obama achieved. Those writings included numerous calls for aggressive cuts to Medicare, Medicaid, and Social Security.

In his last article as a scholar at the American Enterprise Institute, which was written a few months before his appointment as CBO director, Swagel criticized the very concept of a legislative package that connects action on climate change to further investment in the social safety net — one thesis of the Build Back Better agenda. The piece, titled “Action on climate change should not include creation of new entitlements,” was published in the conservative-leaning Washington Examiner.

The CBO is no stranger to controversy. It has caused headaches for the majority party since its inception in 1974, including for Republicans in their ill-fated quest to repeal the Affordable Care Act in 2017. Originally conceived by a Democratic Congress to wrest power away from President Richard Nixon’s Office of Management and Budget, the agency and its headline-prompting scores have become a thorn in the side of liberal policymakers hoping to reorient federal policy to benefit lower- and middle-class Americans. As a number of economic analysts and commentators have recently pointed out, nearly all of the core elements of the American welfare state (like Medicare and Social Security) were adopted before legislation was required to undergo the thorough fiscal scoring process that’s mandated today.

Since assuming his position as the agency’s head, Swagel has been careful to highlight the nominally nonpartisan nature of the CBO. In multiple media appearances and paid speeches, including an address to the Foreign Policy Association on November 5, he has gone to great lengths to frame the agency as “a nonpartisan body created by Congress with the mission of being the honest broker when it comes to measuring and assessing the impact of fiscal policy and budget decisions.” He has also refrained from making public comments that could be construed as critical of Biden’s fiscal policies or those of his predecessor.

But the actions of the agency itself challenge the public relations effort that Swagel has spearheaded. The scores that the CBO has produced under Swagel’s direction have given Democrats good reason to fear that the agency will deal a calculated blow to their odds of passing the president’s agenda.

In the last few years, the agency has repeatedly had to adjust its baseline debt forecasts to account for more robust economic growth and tax revenues than it had previously predicted. And earlier this year, the CBO came under intense fire from congressional Democrats and labor activists for its scoring of a proposal to raise the minimum wage to $15 an hour. That score, which found that an increase in the minimum wage would increase the federal deficit and result in the loss of over 1 million jobs, contradicted the analyses of a number of nonpartisan institutions as well as the results seen by numerous municipalities and states that have enacted higher minimum wage policies in recent years.


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According to Ari Rabin-Havt, a longtime aide to Sen. Bernie Sanders, I-Vt., who spoke at length about the CBO’s role on a recent episode of Deconstructed, not only was that score flawed based on real-world data, but it also came after the CBO spent a considerable amount of time suggesting to lawmakers that its forthcoming score of the wage hike would be relatively noncontroversial.

Backlash to the score was so intense that some congressional Democrats questioned whether they should replace Swagel, lest he become the second unelected bureaucrat with conservative ties to effectively wield veto power over the party’s legislative agenda. When asked to comment on the agency’s work on the minimum wage score and Swagel’s history of comments criticizing federal investments in climate and social programs, the agency referred The Intercept to sections of its website explaining the CBO’s processes.

As of Wednesday, many of the provisions within the Build Back Better Act remain unscored. But a CBO assessment released Monday of the title containing provisions to enhance the IRS’s enforcement power significantly undershot a Treasury analysis that found the provision would raise nearly $300 billion to $400 billion in revenue in the next 10 years. By comparison, the CBO found that the measure would raise only $120 billion, creating an opening for deficit hawks eager to claim that the package will grow the national debt and worsen inflationary pressure on the economy. The drastic difference was a warning shot for Democrats who hoped that the CBO’s analysis of the package would be broadly in line with the numerous analyses conducted by other federal agencies. On Tuesday, key holdout Rep. Josh Gottheimer, D-N.J., indicated that he will move forward despite the agency’s scoring of this particular provision.

Its explanation for the shortfall in the tally for increased IRS funding — that the benefits of increased enforcement will wane significantly over time as the wealthy find new ways to circumvent tax policy — is plausible but should not be seen as politically neutral, as conservative Democrats will no doubt try to claim.

As Rabin-Havt put it, “All of these processes are based on the idea that these institutions are not political: the parliamentarian’s office, the CBO, the courts. … That’s not the world we exist in. Everything is political. There is no institution above politics.”

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