Republicans Tee Up a Debt Ceiling Showdown

Republicans Tee Up a Debt Ceiling Showdown

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Plus, life expectancy drops by most since WWII
Wednesday, July 21, 2021

Senate Republicans Block Infrastructure Debate, but Negotiators Say They’re Close to a Deal

As expected, Senate Republicans on Wednesday blocked debate on a bipartisan infrastructure bill, but negotiators working to finalize the legislation said they were close to agreement and could resolve their remaining disagreements within days.

"We have made significant progress and are close to a final agreement," the bipartisan group of negotiators said in a statement. "We will continue working hard to ensure we get this critical legislation right — and are optimistic that we will finalize, and be prepared to advance, this historic bipartisan proposal to strengthen America’s infrastructure and create good-paying jobs in the coming days."

The vote was 49-51 against proceeding, with Senate Majority Leader Chuck Schumer (D-NY) joining all Republicans in voting no, a procedural move that will allow him to bring the measure up again as soon as next week.

Eleven Senate Republicans reportedly sent a letter to Schumer Wednesday saying that they would vote to advance the infrastructure package on Monday.

Biden’s Spending Plans Would Boost Economy, Not Spark Inflation: Moody’s

Democrats’ plan to spend more than $4 trillion over a period of years on everything from road repair to child care would boost the U.S. economy in the long run without sparking higher inflation, according to a new analysis from Moody’s Analytics.

Roughly tracking President Biden’s "Build Back Better" agenda, the $579 billion infrastructure bill currently under negation in the Senate and the $3.5 trillion reconciliation package Democrats hope to pass alongside it would increase GDP growth while benefiting lower- and middle-income workers most, Moody’s chief economist Mark Zandi and assistant director Bernard Yaros Jr. say.

The plan also seeks to avoid significant deficit spending. "The legislation is more-or-less paid for on a dynamic basis through higher taxes on multinational corporations and the well-to-do and a range of other pay-fors," the analysts write, adding that the fiscal support it would provide would be enough to get the economy back to full employment without pushing the economy much beyond that. "Worries that the plan will ignite undesirably high inflation and an overheating economy are overdone," they say.

A one-two punch: On its own, the smaller infrastructure bill would have a relatively modest effect and start out as a drag on the economy as the pay-fors including multiple tax hikes take effect, the report says. But by 2023, as spending flows, economic growth would be 0.6 percentage points higher relative to a baseline with no infrastructure investment. At its peak in the middle of the decade, the programs would create an additional 650,000 jobs. However, the unemployment rate would not fall below 4%, and the negative effects of the pandemic would never be fully overcome.

If Congress also enacts the larger, $3.5 trillion spending package, the positive economic effects would be amplified. Most of the negative effects of the pandemic recession would be erased by 2022, the analysts say, while economic growth would be about one percentage point higher compared to the baseline.

"The increased social investments in the package, particularly related to child and elder care, healthcare, and housing, also quickly support stronger GDP and jobs," Zandi and Yaros Jr. say. "There are more than 2 million more jobs by mid-decade and the unemployment rate is at least 0.5 percentage point lower." Over the long run, the economy becomes more productive thanks to a better-educated population and higher workforce participation.

Inflation threat downplayed: The analysts say that while worries about rising inflation cannot be dismissed, current conditions — including an unemployment rate near 6% and a depressed labor force participation rate — indicate that the economy still has plenty of slack. Additionally, the spending plans include elements that would reduce inflationary pressure in the long run.

"[M]uch of the additional fiscal support being considered is designed to lift the economy’s longer-term growth potential and ease inflation pressures," Zandi and Yaros Jr. write. "For example, consider the additional spending on new rental housing supply for lower-income households, which is critical to rein in rent growth and housing costs, or the efforts to reduce prescription drug costs."

Democrats tout report: The White House sent the Moody’s analysis to reporters Wednesday, and Senate Majority Leader Chuck Schumer urged lawmakers to read it.

"I hope my colleagues are listening to those benefits — long-term economic growth, easing inflation pressures, lifting productivity, strengthening the labor force, reducing income inequality," Schumer said on the Senate floor. "That’s what one of the nation’s leading economists predicts our two infrastructure bills will achieve. The report by Moody’s should light a fire under all of us."

The bottom line: Though the analysis is unlikely to change partisan minds, it offers Democrats a strong defense of their proposals, as well as their general approach to social welfare spending. "Greater investments in public infrastructure and social programs will lift productivity and labor force growth," Zandi and Yaros Jr. say. "Passage of legislation is far from certain but failing to pass legislation would certainly diminish the economy’s prospects."

Republicans Set the Stage for Another Debt Limit Fight

Debt ceiling brinksmanship is back on Capitol Hill. Senate Republicans are threatening to vote against any increase to the cap unless Congress also enacts spending cuts or other reforms, potentially setting up another risky showdown this fall over the federal government’s borrowing limit.

Senate Minority Leader Mitch McConnell (R-KY) told Punchbowl News Tuesday night that he can’t envision any Republican voting to raise the debt ceiling and said that Democrats should address the issue in the budget reconciliation package they want to pass without GOP support.

"The new ultimatum marked a reversal for Republicans, who agreed to address the debt ceiling — the statutory amount the government can borrow to pay its bills — multiple times to advance policies under President Donald Trump that helped add $7 trillion to the federal debt during his term," The Washington Post’s Tony Romm and Seung Min Kim note.

Democrats fume about a double standard: Democrats aren’t likely to go along with McConnell’s suggestion. "The mere prospect that it could fall on them to solve the debt ceiling conundrum left some party lawmakers seething," Romm and Kim report, "particularly after they joined Republicans to raise and suspend the ceiling under Trump out of a belief that the issue is too dire to politicize."

Relying on the reconciliation bill could be problematic anyway, given that it may not be ready before the debt limit runs up against a dangerous deadline.

A fall X Date: Under an agreement reached two years ago, the debt ceiling is currently suspended until the end of this month, meaning that the Treasury Department is likely to have to soon employ accounting maneuvers known as "extraordinary measures" that enable it to keep paying its bills in the absence of additional borrowing.

The Congressional Budget Office said in a report Wednesday that such measures could prevent the Treasury from running out of cash until October or November — a little later than Treasury Secretary Janet Yellen had forecast earlier this year. The budget office report said that the federal government’s cash balance of more than $850 billion as of June 30 is less than half of the $1.8 trillion it had at the beginning of the fiscal year last October but is "still very high by historical standards."

That, combined with the extraordinary measures, should allow the Treasury to finance normal government operations into the beginning of the new fiscal year, the CBO analysis said, adding that an earlier or later date is possible. Without another increase or suspension of the borrowing limit by then, the U.S. could have to delay some payments, face a market-rattling technical default on its debt or both.

The Bipartisan Policy Center think tank estimated earlier this month that Treasury’s cash and extraordinary measures would be exhausted sometime this fall, noting that Covid-19 relief payments and the uncertain economy make such forecasts more difficult than in past cases.

We’ve seen this before: In 2011, Republicans also demanded spending cuts in exchange for a debt limit hike, and while the showdown was ultimately resolved by an agreement with the Obama administration to cap spending, the political dysfunction on display that summer shook markets. Democrats also say that the spending restrictions enacted then undercut key federal agencies and programs, causing problems that they are now trying to correct.

Why it matters: Besides raising the specter of a default and adding costs to the government’s books by relying on extraordinary measures, the fight over the debt ceiling is also an extension of sharp differences over federal spending in general and Democrats’ planned infrastructure spending in particular. "I don’t think Republicans want to enable [Democrats] to spend trillions and trillions of dollars that we believe simply are designed to grow government," said Sen. John Thune (R-SD), according to the Post. And Sen. John Cornyn (R-TX) said it wouldn’t be responsible to raise the debt ceiling without structural reforms, adding that Democrats need to address "long-term insolvency of things like our entitlement programs."

The numbers: Before it was suspended in 2019, the debt limit was set at $22 trillion. It will reset to the current level of national debt — $28.5 trillion as of June 30 — when the suspension ends.

The bottom line: Some Democrats believe some Republicans would go along with a stand-alone bill to again suspend the debt limit until, Punchbowl notes. But for now, the path forward is uncertain and we’re likely to see more brinksmanship before the debt ceiling question is resolved.

Former IRS Leaders Say Republicans Blew It by Nixing a Budget Boost for the Agency

Three former top IRS officials who served under Republican presidents say that Republicans are making a mistake by pulling a plan to boost funding for the tax agency from the bipartisan infrastructure framework.

In a piece at Politico, former IRS commissioners Charles Rossotti and Fred Goldberg and former associate commissioner Fred Forman say that President Joe Biden’s proposal to boost the tax agency’s funding in an effort to crack down on tax cheats was both good policy and good politics:

"This IRS expansion was based on a smart idea, which could also be good politics and serve the interests of both parties: Not more audits, but better technology and income tracking to catch wealthy cheaters.

"The point of Biden’s plan wasn’t to boost audits but to close the ‘tax gap’ — the amount of taxes currently owed but not paid. We know firsthand that it’s a gigantic number — in 2019 alone it totaled $574 billion, and it’s estimated to reach $7 trillion over the next 10 years. In perspective, that’s equal to the amount of federal income taxes that the bottom 90 percent of individual earners pay in federal taxes on an annual basis.

"Closing the tax gap doesn’t require siccing the IRS on hard-working families and small business owners. Quite the opposite: Most of the people who don’t pay their fair share are upper-income people who use financial vehicles to avoid tax bills. Fixing the tax gap is good politics for both parties because it reduces pressure to raise taxes on law-abiding taxpayers."

Read the full piece at Politico.

Life Expectancy Sees Biggest Drop Since WWII

Life expectancy in the U.S. fell by a year and a half in 2020, the Centers for Disease Control and Prevention announced Wednesday.

The Covid-19 pandemic was responsible for most of the decline, accounting for 74% of the drop from 78.8 years in 2019 to 77.3 years one year later. More than 3.3 million Americans died in 2020 – the largest number of annual deaths in the nation’s history – with Covid responsible for about 11% of the total.

Life expectancy hasn’t fallen that much since World War II. Between 1942 and 1943, it dropped by 2.9 years.

The decline was particularly severe in Black and Hispanic communities. Life expectancy for Black Americans fell by 2.9 years, while Hispanics saw a reduction of 3 years. The decrease for whites was 1.2 years.

"It’s horrific," economist Anne Case told The Washington Post. "It’s not entirely unexpected given what we have already seen about mortality rates as the year went on, but that still doesn’t stop it from being just horrific, especially for non-Hispanic Blacks and for Hispanics."

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