Huge Hurdles for Democrats' $3.5 Trillion Spending Plan

Huge Hurdles for Democrats' $3.5 Trillion Spending Plan

Printer-friendly version
Plus - Millions lose unemployment aid
Tuesday, September 7, 2021

Welcome back after what we hope was a relaxing holiday weekend. President Biden traveled to New York and New Jersey Tuesday to survey the damage caused by Hurricane Ida as administration officials say they plan to ask Congress for $24 billion to provide federal assistance to states responding to natural disasters. Here’s what else you need to know.

Why September Could Be an ‘Unmitigated Mess’

Democratic lawmakers in the coming weeks will attempt to craft what could be the largest spending package in U.S. history.

The effort will pick up speed on Thursday when the House Ways and Means Committee begins to consider its part of the $3.5 trillion reconciliation bill that contains the bulk of President Biden’s economic agenda.

But Democrats face a slew of hurdles in achieving their goal, from a severely compressed timeline as they try to construct a massive spending plan in a matter of weeks to a fundamental lack of agreement on the size of the package and the ways to pay for it. Add in a possible government shutdown when funding runs out at the end of the month and the need to raise the debt ceiling, and you could have a perfect recipe for an epically difficult month.

"September is set to be an unmitigated mess," says Compass Point’s Isaac Boltansky. "We are entering a period of frenetic and muddled legislating encompassing potentially trillions in spending, tax increases, the return of the debt ceiling and a bevy of substantive deadlines at the end of September touching on everything from federal funding to flood insurance."

One eye on spending: The Senate has given the House the green light to write a bill that includes as much as $3.5 trillion in spending over 10 years, and Democratic leadership, as well as progressives on the left, are pushing to include the full amount, to be spent on what The New York Times’s Jonathan Weisman called "the most significant expansion of the nation’s safety net since the war on poverty in the 1960s, devising legislation that would touch virtually every American’s life, from conception to aged infirmity."

But they face resistance from conservative members of the caucus, most notably Sen. Joe Manchin (D-WV), a crucial vote in a Senate divided 50-50.

Late last week in a Wall Street Journal op-ed, Manchin called for a "strategic pause" on the spending plan, citing inflation and the increase in the national debt as reasons to move slowly. "I, for one, won’t support a $3.5 trillion bill, or anywhere near that level of additional spending, without greater clarity about why Congress chooses to ignore the serious effects inflation and debt have on existing government programs," Machin wrote.

On Monday House Speaker Nancy Pelosi (D-CA) dismissed Manchin’s call for a pause. "Well, obviously I don’t agree," she said. "I'm pretty excited about where we are. Everybody's working very hard, the committees are doing their work. We’re on a good timetable, and I feel very exhilarated by it," Pelosi added.

The White House increased the pressure on House Democrats to move forward Tuesday, providing guidance to lawmakers on how to talk about Biden’s plan. "We aim to tell a clear story about what the Build Back Better agenda will do to level the playing field for working people, make corporations and the wealthiest pay their fair share and lower costs that are critical for working families, like prescription drugs, home care, and child care; as well as the growing costs of climate change," White House communications director Kate Bedingfield said in a memo obtained by The Hill.

Another eye on revenues: As Democrats seek to hold the line at $3.5 trillion, they’re also debating some of the proposed tax increases designed to help offset the cost of the spending plan. According to The Wall Street Journal’s Richard Rubin, some of the more aggressive tax hikes that have been discussed appear to be falling by the wayside.

"Progressive Democrats, who had hoped unified party control of the government could spur transformative tax increases on multinational companies and wealthy individuals, look like they will have to settle for a more modest outcome," Rubin wrote over the weekend.

While President Biden and progressive leaders such as Sen. Elizabeth Warren (D-MA) have talked about reversing the Trump tax cuts of 2017 and instituting new levies such as a wealth tax, moderate and conservative Democrats are showing less interest in such ambitious plans. As a result, the package will call for increasing the corporate income tax rate to a more modest 25%, not the 28% some have called for, and the plan to tax capital gains more aggressively could get watered down.

The end result could be less revenue in the package overall, which could increase pressure to make cuts on the spending side – an outcome many observers have been expecting to see.

"Moderates and the leadership are trying to thread a needle with what is clearly a much smaller eye than some progressives would like," Todd Metcalf, a former Democratic congressional aide now at accounting firm PwC, told Rubin. "Do they take that lesson and understand that a more moderate outcome is an acceptable one because it at least advances the ball?"

Unemployment Aid Programs End for Millions of Jobless Workers

Several unemployment aid programs designed to soften the blow of job loss during the Covid-19 crisis expired Monday, eliminating or sharply reducing benefits for millions of jobless workers.

The programs that have ended include:

* Federal Pandemic Unemployment Compensation, which provided $300 per week (originally $600) in addition to state-level jobless benefits.

* Pandemic Unemployment Assistance, which provided benefits to workers who normally do not qualify, including gig workers, independent contractors and the self-employed.

* Pandemic Extended Unemployment Compensation, which extended the duration of payments from 26 weeks to 79 weeks.

Together, those programs have been one of the largest responses to the Covid crisis, with Congress authorizing a bit more than $700 billion in unemployment aid, according to the Committee for a Responsible Federal Budget’s Covid Money Tracker.

Worries about the effects: About 7.5 million people are losing all of the unemployment aid they were receiving, and nearly 3 million additional people are losing the federal enhancement of $300 per week to their state payments. By some estimates, more than 30 million people living in households that were receiving some kind of temporary unemployment benefits will be affected by a loss of income.

"The cessation of this jobless aid, first put in place by Congress nearly 18 months ago, could upend the lives of millions of Americans still struggling to find work at a time when the pandemic’s delta variant is wreaking fresh havoc across a number of states," The Washington Post’s Yeganeh Torbati, Andrew Van Dam and Alyssa Fowers report. "It could also lead to a sharp pullback in spending, particularly in certain areas of the country, impacting a wide range of restaurants and other businesses that rely on consumer dollars."

Extension not likely: Though there have been calls to extend one or more of the unemployment programs, especially in the wake of the latest surge in the delta variant of Covid-19, there appears to be no movement towards doing so. Democrats are focused on passing President Biden’s roughly $4 trillion spending plan in the coming weeks, while many Republicans have blamed the unemployment aid programs for the sometimes disappointing pace of the economic recovery.

The White House has called on states to use some portion of the billions in pandemic relief funds they have received from the federal government to boost unemployment benefits, but none have done so.

Number of the Day: 75%

Three-quarters of adults in the U.S. have now received at least one dose of a Covid-19 vaccine, the White House announced Tuesday. Even so, the country is in the middle of another surge of the virus, and President Joe Biden plans to unveil a new strategy later this week aimed at getting the pandemic back under control. "Despite wide availability of free shots, hesitancy among many Americans -- especially political conservatives -- has left the U.S. well behind many other countries in inoculating its population," Bloomberg News reports.

In Case You Missed It: Social Security Trust Fund to Run Out by 2034, Report Says

Social Security won’t be able to pay full benefits by 2034, one year earlier than projected last year, unless Congress acts to address the program’s finances, according the annual report released last week by the Social Security and Medicare trustees. The report finds that, in 13 years, the combined Social Security trust funds for retirement and disability will only be able to pay out 78% of benefits. The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, is expected to be depleted by 2033, also a year earlier than reported last year.

The Medicare Part A Trust Fund, which pays inpatient hospital benefits, will be depleted by 2026, the same as last year, according to the report. At that point, the program would be able to pay 91% of benefits.

The quicker Social Security depletion reflects the coronavirus recession and the resulting drop in payroll tax income and taxation of benefits. The report also projects higher mortality related to Covid-19 through 2023 and short-term delays in births and immigration.

"Lawmakers have many policy options that would reduce or eliminate the long-term financing shortfalls in Social Security and Medicare," the trustees conclude in a summary of the report. "Lawmakers should address these financial challenges as soon as possible. Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare."

The report says that Social Security could be made solvent for 75 years via a 3.36 percentage point (or 27%) increase in payroll taxes today, but if lawmakers wait until 2034, a 4.2 percentage point increase (or 34%) would be needed. Similarly, a 21% cut in benefits today would make the program solvent over the long-term, but a 26% cut would be needed if lawmakers wait until 2034. (Some combination of tax increases and benefit cuts could also work, but again, the changes would need to be larger if they are delayed.)

About 65 million people were receiving Social Security benefits as of the end of 2020, and nearly 63 million were covered by Medicare.

Please tell your friends they can sign up here for their own copy of this newsletter.

Views and Analysis