Now It's the Senate's Turn on Stimulus

By Yuval Rosenberg

Stimulus Update: Now It's the Senate's Turn

Democrats’ sprint to pass a $1.9 trillion Covid relief package
ahead of the March 14 expiration of enhanced unemployment benefits
is more akin to a relay race. The House of Representatives, as
expected, approved the plan early Saturday morning, passing the
baton to the Senate, where the legislation will face a fresh set of
hurdles.

The final vote in the House was 219-212, with two Democrats,
Kurt Schrader of Oregon and Jared Golden of Maine, joining all
Republicans in voting against the bill. Democrats can’t afford even
one defection in the evenly divided Senate. They’re using a budget
reconciliation process that will allow the bill to pass with a
simple majority vote, but all 50 Senate Republicans are expected to
oppose the package.

To get Democrats on the same page, President Biden held a
virtual meeting on Monday afternoon with a
group of centrists from his party, including some who
have questioned whether the $350 billion provided in the rescue
package for state and local governments could be better targeted
(see more below on the state aid).

No minimum wage hike … at least for now: The Senate
version of the bill will look different than the House-passed
package. The House included an increase in the federal minimum wage
to $15 an hour in its version of the legislation and did so even
after the Senate parliamentarian ruled last week that the provision
doesn’t meet the requirements for inclusion in that chamber under
the reconciliation process.

Progressives are
urging the White House to have Vice President
Kamala Harris, as president of the Senate, overrule the
parliamentarian. “Outdated Senate rules and an unelected
parliamentarian should not get to decide whether the American
people get a $15 minimum wage,” Rep. Mark Pocan (D- WI) said in a
statement.

But the White House has made clear it won’t pursue that path.
“That’s not an action we intend to take,” White House Press
Secretary Jen Psaki told reporters, adding that Democrats don’t
have the 50 Senate votes that would be required for the
maneuver.

So the Senate will strip out the minimum wage hike, and it also
won’t include an alternative proposal from Senate Finance Committee
Chairman Ron Wyden that would have
taxed corporations that didn't increase wages on
their own. Democrats abandoned that Plan B over the weekend after
it proved too problematic.

The political reality: Removing the minimum wage
provision probably helps the White House in its efforts to pass the
relief package, given that Democratic Sens. Joe Manchin of West
Virginia and Kyrsten Sinema of Arizona opposed the increase. But
the revised Senate package will get sent back to the House, where
the exclusion of the minimum wage hike could still complicate the
outlook. House Speaker Nancy Pelosi (D-CA) said Friday she was
confident that Democrats could pass a relief bill without the
minimum wage hike, but she’ll have to show that she can hold her
narrow majority together to do it.

Psaki said Monday that raising the minimum wage remains a
priority for Biden but the White House has no plan yet on how to
accomplish that goal.

What’s next: An initial Senate vote on
the relief plan reportedly could take place as early as
Wednesday.

How Much Aid Do State and Local Governments Really Need?

The $350 billion in state and local aid included in Democrats’
$1.9 trillion Covid relief package is proving to be another point
of contention, even among Democrats. Several Democratic senators
have reportedly pushed for changes to that portion of the
legislation, fueled in part by concerns that states could respond
to an infusion of more federal aid by cutting taxes instead of
devoting the additional funding to pandemic-related needs.

“We could distribute billions to the states, and they turn
around and lower taxes — there are governors talking about that,
and it’s not the point here … there should be a prohibition against
voluntarily diminishing revenues,” Sen. Angus King (I-Maine), who
caucuses with the Democrats, told
The Washington Post last week.

State shortfall not as bad as feared: Nearly a year after
the first coronavirus-related lockdowns, data show that the impact
on most state budgets has been far less devastating than early
forecasts had warned.

“Early in the pandemic, state and local governments appeared to
be in danger of losing hundreds of billions of dollars — or by some
estimates upwards of $1 trillion — in revenue,” the Committee for a
Responsible Federal Budget
noted recently. “This worst-case scenario has
thankfully been avoided, due in large part to the robust federal
response and a relatively strong but uneven partial economic
recovery. While some state and local governments are still hurting,
others are doing quite well and hardly any are doing as badly as
feared.”

As Mary Williams Walsh of The New York Times reports, The
Urban-Brookings Tax Policy Center has found that total state
revenues from April through December were down just 1.8% compared
to the same period in 2019.

An analysis by Moody’s Analytics economist Mark Zandi
pegged the state and local shortfall at about $60 billion through
fiscal year 2022 (including the federal aid already approved). By
contrast, a January
analysis by the left-leaning Center on Budget and
Policy Priorities said that states, localities, tribal nations and
U.S. territories face total shortfalls of about $300 billion
through fiscal year 2022 (again, after factoring in previously
approved aid).

“Most states (34) still project lower revenues for the current
fiscal year than they expected before the pandemic struck, our
analysis of these data indicates,” the center’s Michael Leachman
and Elizabeth McNichol wrote in a report published last week. “In
some cases, the forecasts are much lower.”

Better targeting? Sen. King and others have proposed
directing some of the proposed $350 billion in aid for state and
local governments toward investments to improve broadband, and some
economists have suggested that repurposing some of the money for
infrastructure could be more useful. “Say they would go to $150
billion for state and local aid — that would give them $150 billion
for infrastructure,” Zandi told the Post.

Jason Furman, a former top economist in the Obama
administration, similarly told the Post that the proposed $350
billion in aid exceeds the immediate need: “It should either be
better defined by focusing on what it should be spent on, like
infrastructure or broadband; what it should not be spent on (like
tax cuts); or the total should be reduced.”

Some Democrats and economists argue that states’
pandemic-related costs are set to jump as they push to reopen
schools and provide vaccinations — and that many local governments
are hurting worse than states and still need significant help.
Those backing a larger aid infusion also warn that the pandemic
isn’t over yet, and emerging variants create new uncertainty and
risk for budgets. And they note that the unequal economic toll of
the pandemic, which has hurt lower-income workers far more than
those higher up on the ladder, has both blunted state revenue
losses and increased the need to spend, so that focusing only on
better-than-expected revenues provides an incomplete picture.

On top of all that, they argue, the goal shouldn’t just be to
restore the pre-pandemic status quo but to “build back better,” as
President Biden put it — meaning that state and local investment
plans should be updated. “They’ll need to hire back teachers,
health care workers, and others to support a robust recovery,” CBPP
said in its report. “Restoring that level of job loss will require
some $40-50 billion alone.”

Read more at the
Committee for a Responsible Federal Budget, the

Economic Policy Institute, the
Center on Budget and Policy Priorities or
The New York Times.

Number of the Day: $350 Billion

If private insurers paid the same prices as Medicare, overall
health care spending in the U.S. would drop by about $350 billion a
year, according to an
analysis by the Kaiser Family Foundation released
Monday.

“Health care expenditures are projected to account for 18% [of]
the United States gross domestic product (GDP) in 2021,” the Kaiser
analysts said. “Shifting private insurance to Medicare rates would
decrease this by about 1.5 percentage points, making the share of
GDP spent on health care 16.5% of GDP.”

Most of the drop in spending would hit hospitals’ bottom lines,
and it’s not clear what effect the reduction would have on the
overall health care system. And even with the big drop in spending,
the U.S. would still be an outlier: The reduced spending as a share
of GDP “would still be a far higher amount than comparable
countries spend on health care, which ranges between 9% and 12% of
GDP.”

Warren Revives Wealth Tax Proposal

Massachusetts Sen. Elizabeth Warren (D) on Monday unveiled a
proposal to tax the net worth of the wealthiest Americans, a move
she says would raise roughly $3 trillion in revenues over 10
years.

The Ultra-Millionaire Tax Act would impose an annual tax of 2%
on net worth between $50 million and $1 billion. Households with
assets of more than $1 billion would face an additional 1% surtax,
for a total wealth tax of 3%. The tax would apply only to the top
0.05% of households, Warren said, without affecting the taxes of
the remaining 99.95%.

The
proposal, which was also introduced by Reps.
Pramila Jayapal (D-WA) and Brendan Boyle (D-PA), is similar to a
plan Warren offered during her run for the Democratic presidential
nomination in the 2020 election.

Warren said Monday that the tax would serve a dual purpose,
helping fulfill President Biden’s pledge to invest in
infrastructure, health care and education while also combatting
growing economic inequality.

“We have watched the wealth of the billionaire class in America
increase by more than a trillion dollars over the last year,”
Warren said Monday. “A two-cent wealth tax would just help level
the playing field a little bit, and create the kind of revenue that
would let us build back better, as Joe Biden says.”

Beefing up enforcement: The bill would also provide $100
billion for the IRS to hire more personnel, modernize technology
and enhance enforcement. At least 30% of those subject to the tax
would be audited automatically, and a 40% “exit tax” on net worth
over $50 million would be applied to anyone who seeks to leave the
country.

Billions from the 100 richest:
Warren’s tax would generate $78 billion from the 100
wealthiest households, according to a
Bloomberg analysis Monday. Amazon’s Jeff Bezos
would see the biggest bill, paying about $5.4 billion this year,
while Tela’s Elon Musk would pay about $5.2 billion and Microsoft
founder Bill Gates would pay about $4 billion.

Questions about Warren’s approach: Warren released a

new analysis from University of California,
Berkeley economists Emmanuel Saez and Gabriel Zucman that projected
$3 trillion in revenue from the proposed wealth tax between 2023
and 2032. But critics of earlier versions of Warren’s proposal have
argued that a wealth tax would be far less effective, due in part
to tax avoidance by the super-wealthy.

Some critics have also questioned whether a wealth tax would be
constitutional, a complex issue that could produce a serious
barrier to creating such a levy in the U.S.

Unlikely to pass: Although the idea of a wealth tax is
popular with a majority of Americans and the Warren bill is backed
by many liberal-leaning groups, it is not expected to be enacted
any time soon. As a candidate in 2020, Biden showed little interest
in a wealth tax, and the White House is not expected to back the
new proposal.

Still, White House Press Secretary Jen Psaki said Monday
that the president is sympathetic with Warren’s effort. “Addressing
the inequities in the tax code is something he talked about as part
of the Build Back Better agenda and something he remains committed
to,” Psaki said at a press conference. “He has a lot of respect for
Senator Warren and is aligned in the goal of making sure the
ultra-wealthy and big corporations finally pay their fair
share.”

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