Lawmakers Grapple Nagging Infrastructure Detail: How to Pay for It

WASHINGTON — Republican supporters of a bipartisan infrastructure deal, rushing to lay the groundwork for a Senate vote as early as next week, have found themselves hung up on a familiar issue: how to pay for the hundreds of billions of dollars in new spending.

As lawmakers toil to turn a broad infrastructure outline into detailed legislation, the problem of the so-called pay-fors — which has plagued the bipartisan group behind the framework from the start — has only become thornier. Now, they are bracing for the Congressional Budget Office, the nonpartisan congressional scorekeeper, to rule that the revenue increases they agreed to in June will not add up to enough money to cover the nearly $600 billion for roads, bridges, rail and broadband included in their plan.

Making their job even tougher, conservative groups have begun a pressure campaign to scuttle a key revenue-raiser: a crackdown on tax cheats by the Internal Revenue Service that proponents say could produce as much as $100 billion to help pay for the plan.

“This is going to be a real vulnerability, now until Election Day,” Grover Norquist, the head of Americans for Tax Reform and a veteran conservative activist, said about the I.R.S. provision. “If you put your fingerprints on ‘audit more,’ everyone who gets audited, fairly or unfairly, is going to think, ‘You did this to me.’ Your fingerprints are on the murder weapon.”

His stance reflects a dilemma for Republicans caught between two of their most vital constituencies: antitax activists, who fiercely oppose the financing mechanism, and business groups, which have pushed hard for a bipartisan infrastructure deal.

The divide underscores how the plan, while broadly popular, could still be derailed by the struggle to pay for it.

“There’s still work to be done,” said Senator Mitt Romney, Republican of Utah and one of the bipartisan negotiators, who acknowledged that the budget office might discount some of the provisions. He added, “We’ll keep on keep on working until we get there.”

The bipartisan group of negotiators met on Tuesday to finish their deal and determine legislative language, their first in-person session since returning from a two-week recess. “It’s kind of like coming back to school after you’ve been out for a few weeks — you have to catch up on what everybody has been doing, and you’ve got to move on it quick,” said Senator Lisa Murkowski, Republican of Alaska and a member of the group.

Even as the financing dilemma threatened to scuttle the agreement, administration officials expressed confidence in the plan’s legislative prospects. “The differences the bipartisan deal would make — cutting traffic jams, connecting every American to broadband, and stopping our children from drinking poisoned water — are obviously worth asking extraordinarily wealthy tax cheats to stop breaking the law at everyone else’s expense,” said Andrew Bates, a deputy White House press secretary. “The vast majority of Americans see that as a win in and of itself.”

On a parallel track, Democrats on the Senate Budget Committee met to discuss what to include in a budget blueprint they are putting together, which will be the vehicle to pass an even more expansive package of social spending that Republicans oppose. They plan to move that package using a maneuver known as reconciliation, which would allow it to avoid a filibuster and pass with only Democratic and independent votes.

Senator Chuck Schumer of New York, the majority leader, has said he intends to hold votes on both the budget blueprint and the bipartisan infrastructure bill before the Senate leaves for its August recess.

“It’s not going to be easy, but every member of our caucus knows it’s going to be worth it,” he said at his weekly news conference.

While the budget blueprint is expected to rely on only Democratic votes, enough Republicans need to be convinced of the infrastructure deal’s fiscal rectitude to clear the 60-vote filibuster threshold.

Republicans are unwilling to raise corporate taxes, and the White House refuses to increase the gas tax or accept user fees that would hit middle-class drivers. That left negotiators to propose a grab bag of other measures, like repurposing coronavirus relief funds, using public-private partnerships and beefing up enforcement of the tax code through the I.R.S.

The enforcement provision is critical to raising revenue, predicting that by increasing the I.R.S. enforcement budget by $40 billion, Congress could bring in $140 billion in unpaid taxes over a decade, about what the budget office said in July 2020. The administration has estimated that increased enforcement efforts could yield as much as $700 billion on net over 10 years.

Beyond the questionable economics of the measure are the politics: Conservative groups, backed by moneyed interests and grass-roots activists, are floating an old specter of jackbooted federal agents coming after innocent taxpayers.

The campaign to kill the provision is led by a familiar figure, Mr. Norquist, whose network of conservative activists has worked to cut taxes and strangle the I.R.S. for decades. Mr. Norquist said on Tuesday that his weekly meeting of conservatives in Washington — a power center during the George W. Bush and Barack Obama presidencies — has grown as it went virtual during the pandemic.

The meeting has about 160 participants, including congressional staff members, and that is augmented by 40 state-level activist meetings — all currently focused on the I.R.S. The pitch to Republican lawmakers is that any increase in enforcement will not affect Fortune 100 companies, which already have in-house tax auditors ensuring their compliance, but small businesses in their states — like restaurants, bars, barbers, nail salons and food trucks — that take cash for payment.

“We’re letting elected officials know this is how people will understand this issue going forward,” Mr. Norquist said.

Such threats have resonated.

“It bothers lots of Republicans, and I’d like to have lots of Republicans vote for this,” Senator Jerry Moran, Republican of Kansas, said of the I.R.S. provision, “so I hope it can be something modified, narrowed — or different.”

Narrowing or jettisoning it may tempt some Republicans into accepting the argument that infrastructure investment pays for itself, at least partly, by improving economic efficiency and competitiveness. Some lawmakers, particularly Democrats, have argued that spending on roads, bridges, tunnels and transit is investment in economic efficiency and does not need to be fully offset because it will partly pay for itself, much like how Republicans argue that tax cuts pay for themselves.

“I do think there’s a strong return on investment with regard to infrastructure,” said Senator Rob Portman, Republican of Ohio and a lead negotiator on the deal.

Brian Riedl, a budget analyst at the conservative Manhattan Institute and a former chief economist for Mr. Portman, called the argument “nonsense.” A $100 investment in infrastructure would have to yield a 500 percent increase in economic growth, taxed at 20 percent, to pay for itself, he said. And at best, the Congressional Budget Office determined in 2016 that federal spending produced enough economic growth to offset maybe 5 percent of the cost.

That might not stop Republicans who are eager to back an infrastructure deal from accepting a fig leaf to say the cost will be offset.

“Lawmakers who support legislation are going to grab whatever argument sounds good,” Mr. Riedl said.

Senate Democrats, in working on a budget blueprint, also have yet to settle on the details of what could be a multi-trillion-dollar package that could make prekindergarten and community college universal, expand Medicare, fund child care and combat climate change.

Some moderate Democrats, who have voiced discomfort with liberal ambitions to spend as much as $6 trillion on the broader measure, have signaled they may insist on paying for the entire package.

“Everything should be paid for — how much more debt can y’all handle?” Senator Joe Manchin III, Democrat of West Virginia, told reporters on Tuesday. But, he added, “I’m not a hard ‘no’ on anything. I’m just saying that I like to find ways to pay for things.”

Nicholas Fandos contributed reporting.