Republicans Draw a ‘Red Line’ on Biden’s Infrastructure Plan

Republicans Draw a ‘Red Line’ on Biden’s Infrastructure Plan

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Plus, inflation surge could be bad news for Biden’s spending plans
Wednesday, May 12, 2021

Republicans Tell Biden That Tax Hikes Are Their 'Red Line' on Infrastructure Plan

President Joe Biden hosted the top four congressional leaders at the White House Wednesday for a meeting on infrastructure that yielded little progress and showed just how far apart the two sides remain, with Republicans insisting that they won’t support tax increases to pay for new spending.

Wednesday’s meeting was Biden’s first as president with the “Big Four” congressional leaders: Senate Minority Leader Mitch McConnell of Kentucky and House Minority Leader Kevin McCarthy of California on the Republican side and Senate Majority Leader Chuck Schumer of New York and House Speaker Nancy Pelosi of California for the Democrats. Vice President Kamala Harris also attended the Oval Office meeting.

Following the talks, McConnell told reporters that there is “a bipartisan desire to get an outcome” on infrastructure but that the two sides had yet to even agree on the definition of infrastructure. Republicans have objected to Biden’s use of the term for a broader range of programs, such as those related to home health care and an expansion of electric vehicle charging stations. “We first have to start with a definition of what is infrastructure,” McCarthy said. “That’s not home health. That’s roads, bridges, highways, airports, broadband.”

Biden has proposed more than $4 trillion in spending across two packages, one focused on infrastructure, including transportation, water projects and broadband internet expansion and the other centered on education and caregivers, including an expanded child tax credit and paid family leave, free community college and universal prekindergarten.

Republicans have countered Biden’s infrastructure plan, which would spend nearly $2.3 trillion over eight years, with a five-year, $568 billion plan more focused on physical infrastructure such as roads and bridges. McConnell has said that a package costing between $600 billion and $800 billion would be acceptable to his party. And while Biden has proposed tax increases on corporations and the wealthy, Republicans have suggested lawmakers should look to user fees to cover infrastructure spending.

Republicans draw a red line on taxes:
McConnell and McCarthy said they had made clear to Biden that they oppose revisiting the GOP’s 2017 tax cuts and won’t support tax hikes to pay for an infrastructure plan. “We’re not interested in re-opening the 2017 tax bill. We both made that clear with the president. That’s our red line,” McConnell said. McCarthy added that raising taxes would be “the worst thing you can do in this economy," citing rising gasoline prices.

The New York Times reports that McCarthy sent a campaign text to supporters shortly after the meeting that said, “I just met with Corrupt Joe Biden and he’s STILL planning to push his radical Socialist agenda onto the American people.”

Biden says he’s ‘encouraged’:
Despite the lingering differences, the White House called the meeting “productive” and said the leaders “agreed there was a need for investment.”
“I’m encouraged that there is room to have a compromise on a bipartisan bill that’s solid and significant,” Biden later told reporters.

In a statement, Pelosi called the meeting “a good early step.” She told reporters that she felt “more optimistic” that lawmakers would be able to address infrastructure in a bipartisan way. "We have a different set of values. But what we did agree in the meeting is: Let's agree on what we're trying to achieve. And then we can talk about how we pay for it. Let's not lead with a disagreement. We'll find a way because the public knows that this is necessary," Pelosi told reporters.

Between the lines:
Liberal Washington Post columnists Paul Waldman and Greg Sargent suggest that for all the talk of bipartisanship and dealmaking, the White House strategy may be targeted at another endgame:

“The best way to understand these discussions with Republicans is that they’re really about someone who isn’t in the room: Sen. Joe Manchin III (D-W. Va.), the 50th Senate vote for any Democratic bill and the person who needs to be convinced to give Biden the victory he’s after.

“Above all, Manchin must be able to say that a serious effort to win over Republicans was made, both by the White House and by Senate Democrats. Then it will be easier for him to agree to pass the final package by the simple-majority reconciliation process. …

“The only way Manchin will be part of a purely party-line vote for infrastructure is at the end of an extended process in which Biden makes repeated attempts to bring Republicans in, attempts that are clearly rejected by McConnell.”

The bottom line: Democrats have made clear that, while they’ll give Biden room to reach out to Republicans, they aren’t going to wait long to see if a bipartisan deal is possible and are already preparing to move ahead without GOP support — though that would likely still prove challenging.

Biden is scheduled to meet with six senators who serve as the ranking members on committees related to infrastructure on Thursday.

Inflation Surge Could Be Bad News for Biden’s Spending Plans

Consumer prices rose faster than expected in April, the Labor Department reported Wednesday, sparking new worries about inflation in the U.S. economy.

The consumer price index (CPI) increased 0.8% in April relative to March, the largest monthly increase since 2009. Core CPI, which strips out volatile food and energy prices, rose by 0.9%, the largest increase since 1982. Over the last 12 months, consumer prices have increased 4.2% – the largest annual increase since 2008. Core CPI increased 3% on annual basis.

The results came in well above Wall Street expectations. Analysts knew the numbers would be big, since the economy is reopening rapidly and the annual comparisons would include the weak economy from a year ago, but the overshoot was substantial, about twice as high as expected.

Temporary pressure? Many economists expect inflation to rise in the short run as the recovery gathers strength, with supply and demand eventually shifting back to a more normal relationship. “Readings on inflation have increased and are likely to rise somewhat further before moderating,” Federal Reserve Chair Jerome Powell told reporters in late April. The Fed expects the inflation rate to climb above 2% over the next year, driven by a rebound in energy prices and consumer demand. “However, these one-time increases in prices are likely to have only transitory effects on inflation,” Powell said.

Or something more serious? Economists and investors were surprised by the price data, fueling concerns that inflation may be becoming a more serious and persistent problem. “How transitory is transitory?” Quincy Krosby, chief market strategist at Prudential Financial, asked at CNBC. In some ways the price increases are a good thing, Krosby said, since they are the product of a rebounding economy. However, the Fed has said it wants higher inflation, but it’s not clear that the central bank can control it now that it has arrived. “Be careful of what you wish for,” he warned.

Either way, a political problem: The inflation report could undermine President Biden’s argument that the economy needs trillions more in federal spending, while giving Republicans another weapon in their fight against his ambitious proposals. Bloomberg’s Nancy Cook summed up the situation:

“Biden’s Republican opponents have seized on rising prices, the slower-than-expected pace of hiring and even growing fuel shortages from a computer hack of Colonial Pipeline Co. to compare his administration with the ‘stagflation’ era of former President Jimmy Carter. The specter of hours-long waits in lines to fill up with gas has only enhanced the parallel.”

Even before today’s inflation numbers, Republicans have cited inflation worries as a reason to oppose Biden’s agenda. “There’s so much money out there in the economy that the demand is high, and it’s outpacing supply and it’s starting to push prices up,” Republican Senator John Thune of South Dakota said before the report was released. “We need to be a little more cautious and restrained.”

Still, it’s not just Republicans who are concerned about the threat of inflation. Former Obama administration economist Jason Furman told Bloomberg that the report “bears some caution and should change the way people are thinking about the economy.”

“Your best guess has to be that it isn’t entirely transitory,” Furman said. “This is the type of thing that’s going to start to move those inflation expectations.”

Democrats May Not Back Another Extension of Unemployment Benefits

Following the disappointing jobs report for April, Republicans have been increasingly critical of the $300 weekly supplement the federal government is providing for the unemployed, arguing that the payments are slowing the recovery by allowing workers to stay home. Now, some Democrats are indicating that they think the program should be allowed to expire when it runs out on September 6.

“I'll never vote for another extension as long as I know that with the vaccines, there's not an excuse for no one to be vaccinated,” Democratic Sen. Joe Manchin of West Virginia said Tuesday, according to Politico. “I understand there's millions of jobs in America that we can't fill right now. So we need people back to work. There's more and more people understanding they're in trouble.”

Asked if Democrats in the House had enough votes to extend the benefit, one House Democrats told Politico, “God, I hope not.”

Sen. Jeanne Shaheen (D-NH) hinted that she would probably not support extending the benefit if the economy continues to improve. Noting that the unemployment rate in her state has fallen, she said “if that continues it probably should not be extended.”

Other lawmakers said they would make a decision on the issue later, based on the economic data. Sen. Angus King of Maine, an independent who caucuses with Democrats, said he would prefer to take a “conditions-based, not calendar-based” approach on the issue, with lawmakers responding to the economic conditions on the ground when it comes time to consider an extension.

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