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Biden Plan Won't Boost Inflation, Analysts Say

By Yuval Rosenberg and Michael Rainey
Wednesday, November 17, 2021
Good Wednesday evening! After a brief moment of bipartisanship on the infrastructure earlier this month, Congress has quickly reverted to its more typical ways as key deadlines approach. Here’s what’s going on.

Democrats Eye Forcing a Pre-Christmas Shutdown Showdown: Report

Democrats are still planning — or hoping – to get a House vote on their Build Back Better plan by the end of day Friday. And as the clock ticks toward a December 3 deadline to extend funding for the federal government and avoid a shutdown, they’re reportedly considering another stopgap spending bill that would set up another deadline on December 17 or even closer to Christmas, looking to keep the pressure on Republicans as the two sides continue to spar over annual spending bills.

“Even if Congress enacts another stopgap that provides a couple of additional weeks to negotiate,” Politico’s Caitlin Emma reports, “prospects are bleak for a bipartisan government funding deal before the end of December, likely necessitating another stopgap into early next year.”

The GOP, meanwhile, is taking a hard line on spending talks, and may look to force Democrats into extending federal funding for the rest of the fiscal year at current levels — a move that, as Politico noted this week, would mean “forgoing the potential for extra defense spending in order to jam Democrats into Trump-era domestic limits.”

Lawmaker still have to deal with the massive annual defense bill, which the Senate had been expected to advance to the floor Wednesday. But that procedural vote was delayed after Republicans threatened to block the bill over objections to Senate Majority Leader Chuck Schumer’s (D-NY) decision to include legislation aimed at competing with China in the must-pass defense package. Schumer’s move represents an effort to get the measure, which has already been passed by the Senate, through the House, where some Democrats have their own concerns about the bill.

So stay tuned…

Biden Spending Plan Won’t Boost Inflation: Analysts

With inflation running hotter than expected by many economists, some lawmakers have expressed concerns that President Joe Biden’s $1.85 trillion Build Back Better social spending plan currently making its way through Congress will only make matters worse by pumping more money into an already overheated economy. But according to analysts at two leading rating agencies, those worries may be overblown.

Charles Seville, senior director at Fitch Ratings, told Reuters that the bipartisan infrastructure package Biden signed into law this week and the larger social spending bill still under debate in Congress “will neither boost nor quell inflation much in the short-run.”

Government spending will increase demand less in 2022 than in 2021, Seville said, and in the long run, increased spending on things like child care will boost labor productivity.

William Foster, vice president and senior credit officer at Moody's Investors Service, echoed that view, saying that the two bills stretch spending out over a period of years and “should not have any real material impact on inflation.”

Mark Zandi, chief economist at Moody's Analytics, which operates independently from Moody’s ratings unit, told Reuters that in his view the spending bills would actually help control inflation. “The bills do not add to inflation pressures, as the policies help to lift long-term economic growth via stronger productivity and labor force growth, and thus take the edge off of inflation.”

Zandi also said that the bills would not add to the deficit. “The bills are largely paid for through higher taxes on multinational corporations and well-to-do households, and more than paid for if the benefit of the added growth and the resulting impact on the government's fiscal situation are considered.”

On that point, Fitch’s Seville disagreed. “The deficit will still narrow in FY 2022 as pandemic relief spending drops out and the economic recovery boosts tax revenues,” he told Reuters. “But the legislation (Build Back Better) does not sustainably fund all the initiatives, particularly if these are extended and don't sunset, meaning that they will be funded by greater borrowing.”

But, but, but: Don’t expect comments from these analysts to end the debate on the matter. Plenty of economists are worried about the potentially inflationary effects of the enacted and proposed spending, even if it is stretched out over five or 10 years. And there’s no indication that comments from economists are doing much to change the minds of lawmakers like Sen. Joe Manchin of West Virginia, a key Democrat who has hinted he might oppose the Build Back Better bill on the grounds that it would fuel inflation.

Writing on Bloomberg’s opinion page Tuesday, economist Karl W. Smith summarized the more pessimistic view: “The truth is that Build Back Better would increase inflationary pressures in the near and medium terms. Given the immediate and sustained impact on inflation that this year’s stimulus produced, it’s hard to see how the legislation wouldn’t set the stage for either permanently higher inflation or a sharp increase in interest rates as the Fed attempted to bring inflation under control.”

Build Back Better Act Includes Billions for Niche Programs and Special Interests: Report

Democrats’ Build Back Better Act includes a number of landmark policy changes — big ticket items such as universal pre-K and climate programs. But Jonathan Weisman of The New York Times reports that the legislation also includes a hodgepodge of smaller programs that have gotten less scrutiny even as they can carry price tags running into the billions of dollars.

“[W]hen a nearly $2 trillion piece of legislation moves through Congress, it affords lawmakers ample opportunity to pursue any number of niche issues — and lobbyists and industries plenty of room to notch long-sought victories tucked deep inside thousands of pages of text,” Wesiman writes.

Those provisions reportedly include a $4.1 billion tax break for buyers of electric bicycles, $2.5 billion for “tree equity” and another $2.5 billion to help “contingency fee” lawyers recover their expenses. There’s also a $1.9 billion program to provide a payroll tax credit to local newspapers and broadcasters; a $50 million pilot program to promote the use of doulas, who help guide pregnant women through labor; and a $35 million tax break — with bipartisan backing — for independent music producers.

Some of the lesser-known programs — whether they’re worthwhile or not — may open the door for additional Republican attacks on the entire package, Weisman notes, but their legislative champions aren’t backing down: “Many obscure provisions may emerge as subjects of ridicule, but Democrats are not shying away from their work,” Weisman reports. “Every niche item has a constituency that regards it as central.”

Read more at The New York Times.

US Treasury Could Run Out of Cash by December 15, Yellen Warns

Treasury Secretary Janet Yellen said Tuesday that the federal government could be unable to meet all of its financial obligations if lawmakers fail to raise or suspend the debt ceiling by December 15.

The new deadline gives Congress a little more breathing room than the December 3 deadline Yellen had set previously. The Treasury secretary said the new deadline reflects in part the need to transfer $118 billion to the Highway Trust Fund, as required by the bipartisan infrastructure bill Biden signed into law on Monday.

“While I have a high degree of confidence that Treasury will be able to finance the US government through December 15 and complete the Highway Trust Fund investment, there are scenarios in which Treasury would be left with insufficient remaining resources to continue to finance the operations of the US government beyond this date,” Yellen wrote in a letter to Congressional leaders. She encouraged lawmakers to address the debt limit “as soon as possible.”

Another showdown looms: Republicans say they will not participate in raising the debt limit, insisting that Democrats can and should do it on their own through the budget reconciliation process, which requires only a simple majority in both houses of Congress. But Democrats have indicated that they don’t want to go that route and are calling on Republicans to help out.

“We must pass the debt limit,” Senate Majority Leader Charles Schumer (D-NY) said Tuesday. “We are focusing on getting this done in a bipartisan way.”

After vowing earlier this year not to help, Republicans changed tactics as the previous deadline approached in October and agreed not to delay a Democratic vote in the Senate. Some Democrats think that Republicans will abandon their hardline stance once again as the December deadline approaches and allow Democrats to vote on the issue.

“I think Republicans have now set the precedent that they understand they have an obligation to at least allow us to increase the debt limit with Democratic votes,” said Sen. Chris Murphy (D-Conn.) “I expect that we’ll reach the same place.”

But Republicans show no signs of backing off their position. “I write to inform you that I will not provide such assistance again if your all-Democrat government drifts into another avoidable crisis,” Senate Minority Leader Mitch McConnell (R-KY) wrote in a letter to President Biden after the most recent showdown on the issue.

Senate Minority Whip John Thune (R-SD) said he expects the upcoming confrontation to play out differently than the last one, and advised Democrats to start planning a new strategy. “The sooner they get started on that, the better,” he said.

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