Huge Hurdles for Democrats' $3.5 Trillion Spending Plan

By Michael Rainey

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.

News

Views and Analysis