Infrastructure Plans Hit Major Roadblock: Deficit Concerns

By Yuval Rosenberg

Democrats Search for Consensus on Massive Spending Package

Democratic lawmakers are rushing this week to complete the
blueprint for a massive, multi-trillion-dollar spending package
they plan to offer alongside a smaller, bipartisan infrastructure
bill, and as
Politico reports Tuesday, they are cramming as
many priorities as they can into the plan, which is likely their
last opportunity to pass legislation via budget reconciliation this
year — a process that would theoretically require no GOP
support.

The package is expected to include programs left out of the
bipartisan infrastructure package agreed to by the White House and
Senate negotiators. Many of those priorities have been laid out in
President Joe Biden’s $4 trillion economic agenda. In addition,
progressive lawmakers are pushing to add some of their own
priorities to the mix.

Here are some of the programs being discussed for inclusion in
the still-developing plan, according to Politico:

* Universal prekindergarten,

* Free community college for two years,

* Paid family leave,

* Paid medical leave,

* Free meals for all public school students, regardless
of income,

* Permanent child tax credit,

* Tax breaks for renewable energy,

* Tax subsidies for affordable housing,

* Tax break for child care expenses,

* Subsidies to promote green farming practices,

* Additional funding for election infrastructure,

* Funding for broadband internet,

* “Prevailing wage” mandate for federal projects,

* Electric vehicle charging stations,

* Empowering Medicare to negotiate lower drug prices,

* Medicare coverage expansion for dental, vision and hearing
care,

* Lowering the age of Medicare eligibility.

Funding is crucial: Paying for all the proposed spending
could be a decisive issue for many lawmakers, especially following
a pandemic year with trillions in federal relief spending that sent
deficits and debt soaring.

Sen. Joe Manchin (WV), a key vote in a closely divided Senate,
repeated his belief Tuesday that the package must include
sufficient revenues. “Everything should be paid for,” he said. “How
much more debt can y’all handle?”

Other Democrats say they don’t think every cost needs to be
covered by new revenues. “My view is that some of that one-time
infrastructure spending doesn’t need to be offset dollar for
dollar,” Sen. Chris Van Hollen (D-MD) said Monday.

Senate Majority Leader Chuck Schumer (D-NY) reportedly thinks he
can find roughly $3.5 trillion in revenues. “It is not going to be
easy, but it is certainly going to be worth it,” Schumer said
Monday. “The federal government has not made a significant
stand-alone investment in infrastructure in decades.”

Despite concerns, Democrats are determined: New inflation
data released Tuesday showing that inflation rose 5.4% from a year
earlier has added to concerns about the size of the reconciliation
package. But Democrats are still pushing ahead, seeing this as a
once-in-a-generation opportunity to change the trajectory of the
country.

“The most important thing is we go big,” Senate Banking
Chair Sherrod Brown (D-OH) told Politico. “The public wants us to
go big. We make a difference for a generation on some of these
issues.”

Republicans Waver on Bipartisan Infrastructure Deal

As Democrats debate the size and scope of their “human
infrastructure” package, the bipartisan deal for core
infrastructure investments that senators reached with the White
House is reportedly at risk of stalling as Republicans raise
concerns about the proposed financing.

Eleven Republican senators have endorsed the plan, which calls
for nearly $600 billion in new spending on road, bridges and other
“hard” infrastructure over five years. But five of the 11
told CNN on Monday that they could still withdraw
their support given their concerns about some of the proposals to
pay for the measure — including increased IRS enforcement — and
Democratic plans to push a larger partisan bill alongside the
bipartisan effort.

“Part of the motivation is trying to make certain that we don’t
spend $6 trillion," Sen. Jerry Moran (R-KS) said on Monday evening,
according to
Politico. If "this is lending itself toward that
outcome then I would no longer be a yes at that point in time."

Sen. Richard Burr (R-NC) reportedly said he wants to see the
final language in the bill, and a cost estimate from the
Congressional Budget Office. Budget experts have said that the mix
of revenue raisers and spending reductions proposed to cover the
new spending will
fall well short of fully offsetting the costs.

Sen. Rob Portman (R-OH), one of the negotiators behind the deal,
reportedly acknowledged as much on Monday, saying that the CBO
estimate might exclude gains from some of the stepped-up IRS
enforcement. “We’ve always thought the infrastructure pay-fors were
going to be a challenge,” Portman
said. “We want to have pay-fors. We’ve got some
good ones. The CBO might not give us full credit.”

That could lead Republicans to bolt — or at least force the
negotiators to try to find some additional financing.

“I think a lot of our members are going to look at, how credible
are the pay-fors? And how large is this?” said Senate Minority Whip
John Thune (R-SD). “For our members, it’s really going to come down
to, is this going to be all put on the debt and financed on top of
all the other debt and spending that we’ve done in the last 15
months? Or are some of these pay-fors actually going to be
pay-fors?”

Who’s solid and who’s on the fence: Politico notes that
the five GOP senators who negotiated the deal remain solidly behind
it. Those five are Portman, Bill Cassidy of Louisiana, Susan
Collins of Maine, Lisa Murkowski of Alaska and Mitt Romney of Utah.
But the support from Sens. Burr, Moran, Lindsey Graham of South
Carolina, Mike Rounds of South Dakota, Thom Tillis of North
Carolina and Todd Young of Indiana is less firm.

Adding to the uncertainty, Senate Minority Leader Mitch
McConnell (R-KY) has yet to back the bipartisan deal. “Republicans
believe that if he urges his colleagues to vote against the
bipartisan deal, it could ultimately collapse,” CNN notes.

Senate passage of the bipartisan package would require 10
Republican votes, assuming the chamber’s 50 Democrats unite behind
the bill, which is not given.

What’s next: The bipartisan senate group behind the bill
was expected to meet again on Tuesday, and the drafting of the
legislation is expected to drag into next week. "We're going to
have to spend the time and energy to deal with all the issues
outstanding, and there are a lot of issues that are outstanding,"
Romney said, according to CNN. "This is a major piece of
legislation, which deals with the work of many committees, and so I
can't possibly predict how long it will take."

If Republican support for the deal collapses, Democrats would
have to roll the two bills being crafted into one large package
that they could try to pass via reconciliation.

Deficit Tops $2.2 Trillion Over First Nine
Months of Year

The federal budget deficit topped $2.2 trillion over the first
nine months of the fiscal year, the Treasury Department said
Tuesday. The June deficit was $174 billion, down from a record $864
billion in June 2020, when pandemic response measures resulted in a
massive monthly gap.

Receipts last month totaled $449 billion, while outlays totaled
$623 billion, a 44% drop from the prior year. The difference is
largely due to the cost last year of the Paycheck Protection
Program. The Small Business Administration, which ran the program,
had outlays of more than $500 billion last year but just $31
billion this year.

The deficit for the first nine months of the year is down from
$2.7 trillion over the same period last year, but the Congressional
Budget Office projects that the full-year deficit will again reach
$3 trillion, close to the record $3.1 trillion gap in fiscal year
2020.

The Committee for a Responsible Federal Budget last week
noted that the federal government has borrowed over $10 billion per
day for the last 15 months.

Quote of the Day

“We are going to come out of this cycle with a much higher
opinion about the efficacy and timeliness of fiscal policy as a
counter-cyclical tool. Frankly, it was very effective -- almost too
effective.”

– Stephen Stanley, chief economist at Amherst Pierpont
Securities, in a
Bloomberg News article previewing Federal Reserve
Chairman Jerome Powell’s testimony before Congress on Wednesday and
Thursday. Democrats are expected to prod Powell to support
additional government spending as they look to enact large
infrastructure and social welfare plans, while Republicans are
expected to highlight the risks of additional deficit spending and
inflation, Bloomberg’s Craig Torres reports.

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