Deficit Hits Record $1.7 Trillion in First Half of Fiscal Year
Driven by unprecedented spending in response to the Covid-19 pandemic, the federal budget deficit rose to a record $1.7 trillion in the first six months of the 2021 fiscal year, the Treasury Department announced Monday.
The deficit numbers for the first half of the fiscal year — covering October 2020 to March 2021 — were roughly $1 trillion higher this year than during the same period the year before. In March alone, the deficit came to nearly $660 billion, driven in large part by $339 billion in pandemic-relief payments to individuals.
This chart from the Treasury’s monthly report shows the surge in outlays that begins in April of 2020, the first full month of federal spending authorized by the $2.2 trillion Cares Act, with another noticeable spike in March 2021 following the passage of the $1.9 trillion American Rescue Plan Act.
Biden Says He’s ‘Prepared to Negotiate’ on Infrastructure Plan and How to Pay for It
President Joe Biden met Monday with a bipartisan group of lawmakers as he begins what will be a weeks-long push to win congressional support for his nearly $2.3 trillion infrastructure plan.
“I’m prepared to negotiate as to the extent of the infrastructure project as well as how we pay for it," Biden said at the start of his Oval Office meeting.
As lawmakers return to the Capitol for the first time in two weeks, Biden’s plan already faces opposition from Republicans and even some members of his own party, and negotiations over the coming month or so will be crucial to determining the size, scope and ultimate fate of the proposal.
“I think everyone acknowledges we need a significant increase in infrastructure. It's going to get down to what we call infrastructure,” Biden said, adding that he believes that access to clean water and high-speed broadband qualify. “It's not just roads, bridges, highways, etc.”
Four Republicans and four Democrats met with Biden and Vice President Kamala Harris: Sens. Maria Cantwell (D-WA), Roger Wicker (R-MS), Deb Fischer (R-NE) and Alex Padilla (D-CA) and Reps. Don Young (R-AK), Don Payne (D-NJ), Garret Graves (R-LA) and David Price (D-NC).
“The lawmakers in Monday's meeting are not the names usually associated with Oval Office meetings on major legislative initiatives -- no members of congressional leadership or high-profile moderates are on the invite list,” CNN’s Kate Sullivan and Tami Luhby note. “Instead the guest list is made up of lawmakers from both parties who have a history of working on infrastructure and sit on the committees that will shape the proposal as it moves through Congress.”
Among the lawmakers notably not in Monday’s meeting were key centrists like Sens. Joe Machin (D-WV), Susan Collins (R-ME) and Lisa Murkowski (R-AK) as well as Reps. Peter DeFazio (D-OR) and Sam Graves (R-MO), the chairman and ranking member of the Transportation and Infrastructure Committee.
Republicans remain opposed to Biden’s plan: Many Republicans viewed Monday’s meeting skeptically, according to Politico, seeing it as “an optics move intended to obscure that the Biden administration has no plans to come to the table and seriously whittle down the legislation to a point where it can get GOP support.”
Senate Minority Leader Mitch McConnell (R-KY) on Monday continued to criticize the Biden package, which he has labeled a Trojan horse for tax hikes that uses the infrastructure label to advance a Democratic agenda. Democrats, he said Monday, are “embarking on an Orwellian campaign to convince everybody that any government policy whatsoever can be labeled ‘infrastructure.’”
Wicker, the Mississippi Republican who was one of the lawmakers to meet with Biden on Monday, highlighted the challenges the administration faces in winning GOP support for the plan. “This is a massive social welfare spending program combined with a massive tax increase on small-business job creators,” he said on ABC’s “This Week” on Sunday. “I can’t think of a worse thing to do.”
White House releases state-by-state factsheets on infrastructure needs: To try to overcome such objections and help make the case for Biden’s plan, the White House on Monday released state-by-state summaries of infrastructure needs that it said highlight the urgency of spending on roads, bridges, public transportation, housing and other areas after what it describes as a decades-long “systemic lack of investment.”
Josh Boak of the Associated Press reports:
“Drawn from an array of private and public data, the reports show there are 7,300 miles (11,748 kilometers) of highway in Michigan alone that are in poor condition. Damaged streets in North Carolina impose an average yearly cost of $500 on motorists. Iowa has 4,571 bridges in need of repair. There is a roughly 4-in-10 chance that a public transit vehicle in Indiana might be ready for the scrap yard. Pennsylvania’s schools are short $1.4 billion for maintenance and upgrades.”
The White House summaries also include Infrastructure Report Card grades for most states. “Of the states rated, the highest grade went to Georgia and Utah, which each notched a C-plus,” Boak writes. “The lowest grade, D-minus, went to the territory of Puerto Rico.”
A ‘lobbying frenzy’: Lawmakers are well aware of the need for infrastructure investment in their states and districts — and many have begun lobbying the administration for funding for specific projects, Emily Cochrane, Pranshu Verma and Luke Broadwater of The New York Times report:
“Senior lawmakers have started collecting lists of requests from their colleagues for what should be included in the bill, while top White House officials are fielding a torrent of calls from rank-and-file lawmakers, all of whom have their own ideas.
“‘My phone is blowing up,’ Pete Buttigieg, the transportation secretary, said in an interview. Nearly every lawmaker ‘can point to a road or a bridge or an airport” in his or her district that is in dire need of repair.’”
Where the action is: Biden and the White House pushed back on suggestions that any efforts at bipartisanship are merely window dressing. “But even as the White House maintains it is looking for bipartisan engagement,” Politico’s Megan Cassella noted on Sunday, “the focus on Capitol Hill is already shifting from winning over Republicans to gaming out what will need to get cut if Democrats end up passing the sprawling package through the budget maneuver known as reconciliation — a move that would require keeping the caucus united in support.”
What’s next: As they approach negotiations warily, both sides will have to decide how deeply they want to invest in pursuing a bipartisan deal. “Democrats have the biggest decisions to make,” Punchbowl News suggests. Speaker Nancy Pelosi (D-CA) has set a July 4 target for passing the infrastructure package in the House. “If Biden, Pelosi, and Senate Majority Leader Chuck Schumer (D-N.Y.) don’t believe that Republicans are bargaining in good faith or that a deal can be reached, they’ll go the reconciliation route.”
Fed Chair Powell Says Economy Ready to Boom
Federal Reserve Chair Jay Powell told “60 Minutes” Sunday that the U.S. economy is turning a corner and on the verge of a significant increase in growth.
“What we're seeing now is really an economy that seems to be at an inflection point,” Powell said. “And that's because of widespread vaccination and strong fiscal support, strong monetary policy support. We feel like we're at a place where the economy's about to start growing much more quickly and job creation coming in much more quickly.”
Saying that “the outlook has brightened substantially” in recent weeks, Powell also warned that the U.S. isn’t entirely out of the woods yet, with Covid-19 still lurking as a serious threat. “[T]he principal risk to our economy right now really is that the disease would spread again,” he said.
Asked about the risk of inflation spiking as the economy ramps up again, Powell said it wasn’t an immediate concern, in part because of the lessons learned during the last recession. “The economy has changed,” he said. “And what we saw in the last couple of cycles is that inflation never really moved up as unemployment went down. ... That means that we can afford to wait to see actual inflation appear before we raise interest rates.”
Why the White House Isn’t Too Worried About Inflation
While Fed chief Powell has repeatedly downplayed the risk, some economists and policymakers are worried that the U.S. economy could stumble into a 1970s-style inflationary spiral produced by the flood of relief and stimulus spending authorized by Congress in the last year and the additional spending being proposed by Biden.
Former Obama economic adviser Larry Summers is one of the leading critics expressing concerns. “It may be that a way will be found to bring it under control,” Summers told Bloomberg two weeks ago, referring to a sudden surge in inflation. “But as I look at $3 trillion of stimulus, $2 trillion of savings overhang, a major acceleration coming from COVID in the rear-view mirror, rates expected by the Federal Reserve to be at zero for three years even in a booming economy, record growth this year, major expansion of the Fed balance sheet, and much new fiscal stimulus to come — I'm worried.”
The White House on Monday made its case against the inflation hawks, issuing a briefing on what to expect on the inflation front in the coming months. Written by Jared Bernstein and Ernie Tedeschi, who serve on President Biden’s Council of Economic Advisers, the document says that while prices are expected to rise in the coming months, the increase will be temporary and fade relatively quickly — an outlook in accordance with those provided by the Fed and the Treasury under Secretary Janet Yellen.
History as guide: Bernstein and Tedeschi say that while the White House will monitor inflation carefully and act if serious problems crop up, there is good reason to doubt that inflation will emerge as a long-term problem. One reason to be confident is that there have been a handful of similar experiences in the past that did not produce long-term issues.
“The United States experienced short bursts of inflation in some prior periods of pandemics or large-scale reallocations of economic resources, such as in 1918—driven by the Spanish Flu and demobilization from World War I—as well as the demobilization from World War II after 1945 and the resurgence in defense spending due to the Korean War,” they write.
The distortions of ‘base effects:’ The economists say that the expected increase in prices over the next few months may seem worse than they really are because they are being measured on an annual basis, with a reference point based in the depths of the pandemic, when economic activity was low.
“The issue with base effects is not that they make inflation measures wrong,” they say. “Rather, the base effects distort our understanding of how underlying, near-term trend inflation is behaving right now, suggesting, for example, higher rates of inflation than most analysts expect to persist.”
Over time, the base effect will fade as the reference point for measuring price increases gradually improves.
Supply and demand out of whack: Other short-term issues that could contribute to a temporary rise in inflation include supply chains that need to be rebuilt, resulting in short-term shortages, and a post-pandemic surge in demand for services as Americans flock to restaurants and vacation destinations. Both supply and demand problems should work themselves out in a matter of months as the economy returns to something close to normal, Bernstein and Tedeschi say.
Long-term view: The markets show that while price increases are now baked into the outlook for the short-term, investors expect inflation to drop back to pre-pandemic levels relatively soon. “Over the longer-term,” the economists say, “investors for the moment are assuming inflation that is consistent with recent history as well as the Federal Reserve’s target” of roughly 2%.
- Why Big-Spending Biden Can Shrug Off GOP Warnings of Inflation – Victoria Guida, Politico
- Biden's Two-Track Economy Tackles Twin U.S. Threats – Noah Smith, Bloomberg
- The Yellen Doctrine Is So Much More Than Corporate Taxes – Daniel Moss, Bloomberg
- Biden’s Tax Plan Could Bring the World Closer to a Level Playing Field for Capital – Washington Post Editorial Board
- Joe Biden Is Right. We Need Human Infrastructure Spending, Too. – Helaine Olen, Washington Post
- Republicans Have Found Yet Another Way to Scam Their Own Voters – Greg Sargent, Washington Post
- What’s Conservative About a $3,600 Child Allowance? – Ramesh Ponnuru and Michael R. Strain, Bloomberg
- How F.D.R.’s Heir Is Changing the Country – Jonathan Alter, New York Times
- The Comeback of the Bottom Half – Justin Fox, Bloomberg
- Did the Fed Shift Policy Lanes at the Wrong Time? – Mohamed A. El-Erian, Bloomberg
- Airlines Don't Need to Be Saved by Taxpayers Again – Dan Katz, Bloomberg
- Conservative Courts Say They Can’t Set Health Policy — and Then They Do It Anyway – Wendy Parmet, Washington Post