Federal Dollars Drive Huge Drop in Poverty

Federal Dollars Drive Huge Drop in Poverty

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Plus, the economy surpasses its pre-pandemic size
Thursday, July 29, 2021

We’ve got good news for you today and lots of it, from the bipartisan infrastructure deal moving ahead in Congress to growth in the economy to a big decrease in poverty. Oh, and an Olympic gold medal for Sunisa Lee in women’s gymnastics provides even more to celebrate. Here’s what you need to know.

Infrastructure Bill Moves Forward, but Bumpy Road Ahead

Step One is complete. The Senate voted 67-32 Wednesday night to open debate on a $1 trillion infrastructure bill, with 17 Republicans joining all Democrats in voting to advance the package. The vote puts the Senate on track to pass the bill by next week, potentially giving President Joe Biden and a bipartisan group of 10 lawmakers on a path to secure the bipartisan achievement they’ve pursued through weeks of up-and-down negotiations that at times seemed on the verge of collapse.

“In the end, the unique dynamics of the group, both personally and politically, helped make it happen,” Punchbowl News says, noting that the band of senators that hammered out the deal had shown a willingness to buck their own parties and work across the aisle. “It happened from the center out. In other words, at a time when Washington seems broken, this group of members behind me came together, along with others, and decided we were going to do something great for our country,” Sen. Rob Portman (R-OH), the lead Republican negotiator, said at a celebratory press conference Wednesday night.

The vote, for now at least, also means that the two-track strategy adopted by Democratic leaders and the White House — pushing for a bipartisan deal while also moving ahead with a partisan, $3.5 trillion package comprising the rest of Biden’s economic agenda — seems to be working, though plenty of pitfalls remain.

“We are on track to pass both elements of the two-track strategy before we adjourn for August recess,” Senate Majority Leader Chuck Schumer (D-NY) said. “It took some prodding and a few deadlines, but it all has worked out for the better.”

Senate Minority Leader Mitch McConnell (R-KY) voted to begin consideration of the bill Wednesday, though some other members of his Republican Senate leadership team did not. McConnell expressed support for the deal in remarks on the Senate floor Thursday. “It’s guaranteed to be the kind of legislation that no member on either side of the aisle will think is perfect. But it’s an important, basic duty of government,” he said. “I’m glad to see these discussions making progress and I was happy to vote to begin moving the Senate toward what ought to be a robust, bipartisan floor process for legislation of this magnitude.”

What could still derail the bill:
The bipartisan deal now has some momentum behind it, but despite the happy talk, it still faces some hurdles to passage. For one thing, an official Congressional Budget Office estimate of the spending and revenue in the package could still swing some votes if it shows that the proposed pay-fors are less than credible.

“Although we are confident that the Senate can pass the bill remaining risks include a critical CBO score of the pay-for assumptions and the potential for poison-pill amendments,” Benjamin Salisbury, director of research at Height Capital Markets, said in a note on Thursday morning.

Portman told reporters Wednesday night that the bipartisan group was open to amendments but he hadn’t heard of any poison pills. “We want to get a strong vote because we need to send it over to the House like a torpedo, with plenty of bipartisan support,” he said.

The House could present some more significant challenges. Already, some Democrats — most notably Oregon Rep. Peter DeFazio, chair of the House Committee on Transportation and Infrastructure — have indicated that they have significant issues with the Senate deal and won’t vote for it unless it’s paired with a larger budget reconciliation package funding investments in health care, child care, education and climate — a stance that House Speaker Nancy Pelosi (D-CA) has backed.

“Progressives have been clear from the beginning: a small and narrow bipartisan infrastructure bill does not have a path forward in the House of Representatives unless it has a reconciliation package, with our priorities, alongside it,” Rep. Pramila Jayapal (D-WA), chair of the Congressional Progressive Caucus said. “The votes of Congressional Progressive Caucus members are not guaranteed on any bipartisan package until we examine the details, and until the reconciliation bill is agreed to and passed with our priorities sufficiently funded.”

‘Multiple near-death experiences’: Those threats by progressives may ultimately melt away under pressure from the White House and Democrats eyeing the calendar and looking ahead to the 2022 midterm elections, but with Sen. Kyrsten Sinema (D-AZ) insisting Wednesday that she won’t back a $3.5 trillion price tag on the second package, Democrats will likely face some painful intraparty fights in the coming weeks and months.

“We’re still going to face multiple near-death experiences, as is the case with any major legislation, but we’re going to do this,” said Sen. Brian Schatz (D-HI).

What’s next:
The text of the package was still being finalized, but the Senate could vote Friday on a motion to proceed and could consider amendments as soon as this weekend, with a final vote next week.

How the Infrastructure Bill Changed From Biden’s Original Plan

The weeks of negotiations and compromise on the bipartisan infrastructure deal resulted in some relatively minor changes to the original framework — and some rather large ones to the proposed financing.

The agreement announced Wednesday provides for $550 billion in additional federal spending over five years, some $29 billion less than the original deal. It includes less money for public transit and clean energy than Democrats had wanted, removes plans for a $20 billion “infrastructure bank” and strips out the $40 billion in increased funding for the Internal Revenue Service that negotiators had originally included as a way to raise about $100 billion in revenue by boosting collection of unpaid taxes.

The final plan also differs significantly from the nearly $2.3 trillion plan President Biden originally proposed in March (or $2.6 trillion including tax credits). The New York Times has an excellent interactive graphic detailing how and where Biden’s original proposal shrank. “There were six major areas in Mr. Biden’s original infrastructure proposal: transportation, utilities, pollution, innovation, in-home care and buildings,” The Times notes. “Almost all these areas were scaled back or eliminated in the bipartisan plan, with one exception: pollution cleanup.”

The image below doesn’t do it justice, so check out the full interactive graphic by Aatish Bhatia and Quoctrung Bui at the Times.

Economy Roars in Second Quarter, Recovers Pandemic Losses

With another impressive period of growth in the second quarter, the economy has recouped its recessionary losses and now exceeds its pre-pandemic size, the Commerce Department announced Thursday. But the 6.5% annualized growth rate reported by the agency was below many economists’ estimates, highlighting the difficulties businesses and consumers still face amid global supply constraints, labor shortages and lingering fears about Covid-19 across the country.

On the heels of 6.3% growth in the first quarter, and fueled by another round of income support from the federal government, many economists expected to see GDP surge by 8% or more in the second quarter, as consumers sitting on record savings made up for lost time by splurging on travel, entertainment and dining out. But bottlenecks throughout the economy limited the bounce-back growth, hitting businesses particularly hard as they struggled to provide sufficient stock and rebuild inventories.

Consumers to the rescue: Consumer spending grew at a blistering pace during the quarter, clocking in at an 11.8% annual rate. The total value of goods and services produced in the U.S. climbed to an annualized $19.36 trillion, above where it stood at the beginning of 2020. Those results bolstered the view that economic growth will maintain a robust pace of 6% or more for the full year. 

“Consumers are going to continue to drive the economic train,” Mark Zandi, chief economist at Moody’s Analytics, told the Associated Press. “There is a lot of excess savings, a lot of cash in people’s checking accounts.”

Vulnerabilities persist: Although the economy continues to rebound, new outbreaks of Covid-19 could hamper the recovery. Other factors that could weigh on growth in the coming months include shortages of key components like microchips, rising inflation and labor shortages, especially in the low-wage service sector.

Still, many analysts emphasized the positive aspects of the latest data, and the Biden administration was quick to take credit for the solid report. Saying “America is on the move again,” White House Press Secretary Jen Psaki reminded reporters that the outlook has improved significantly in a relatively short period of time. “This wasn’t preordained – in fact, just one year ago, CBO predicted real GDP would be 3% below its pre-pandemic peak at this time,” she said in a statement. “But, thanks to shots in arms and checks in pockets, we’ve been able to far outstrip that and power a recovery twice as fast as after the last recession.”

Federal Aid Drives Record Drop in Poverty

The level of poverty in the U.S. will fall by roughly half this year, due almost entirely to the increase in government aid provided during the Covid-19 pandemic, according to a new analysis by a team of researchers at the Urban Institute.

Looking at the effects of the $1.9 trillion American Rescue Plan Act, which provided a range of benefits including direct payments, enhanced unemployment aid and refundable child tax credits, the researchers estimate that the poverty rate will fall to 7.7% in 2021 — a huge drop from the 13.9% rate estimated for 2018, and the largest single-year reduction on record. In raw numbers, about 20 million fewer people are living in poverty due to the programs in the ARPA.

More broadly, the researchers estimate that without government assistance — including “unemployment insurance (UI), government means tested programs (either standard benefits or benefits increased because of the pandemic), pandemic-related stimulus payments or state payments, or the advance child tax credit” — the poverty rate in 2021 would be 23.1%. All told, those programs are keeping about 50 million people out of poverty.

“Wow — these are stunning findings,” the Brookings Institution’s Bob Greenstein told The New York Times. “The policy response since the start of the pandemic goes beyond anything we’ve ever done, and the antipoverty effect dwarfs what most of us thought was possible.”

Soaring costs, temporary programs: “The extraordinary reduction in poverty has come at extraordinary cost, with annual spending on major programs projected to rise fourfold to more than $1 trillion,” says The New York Times’ Jason DeParle. “Yet without further expensive new measures, millions of families may find the escape from poverty brief. The three programs that cut poverty most — stimulus checks, increased food stamps and expanded unemployment insurance — have ended or are scheduled to soon revert to their prepandemic size.”

For more, read the Urban Institute analysis here and DeParle’s extensive write-up here.

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