Republicans Tee Up a Debt Ceiling Showdown

By Yuval Rosenberg

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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