White House Warns of Recession if...

White House Warns of Recession if...

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Plus, a critical House vote coming next week
Friday, September 17, 2021
The Fisc

House to Vote Next Week on Debt Limit Suspension

Majority Leader Steny Hoyer (D-MD) said Friday that the House will vote on a measure to suspend the debt ceiling next week. He did not say, however, whether the bill would be paired with a measure providing funding for the federal government, which could shut its doors when the new fiscal year starts on October 1 if Congress fails to act before then.

The House Rules Committee is set to take up a bill Monday to fund the government through either December 3 or 10. Democratic leaders have reportedly been considering whether to tie the debt limit legislation to the must-pass stopgap funding bill.

“Decoupling government funding from the debt limit would leave many Republicans more willing to back a short-term government funding bill that includes billions of dollars in disaster aid for hurricane-battered red states across the southeast, which was requested by President Joe Biden,” Politico’s Caitlin Emma reports.

The bottom line: Republicans have vowed not to support any efforts to raise the debt limit, arguing that Democrats must do it on their own. Next week’s vote could bring that standoff to a head, and force one side or another to change its tactics.

White House Warns Debt Default Could Cause Recession

The Biden administration on Friday issued fresh warnings about the potential damage that could result from a U.S. debt default.

“Hitting the debt ceiling could cause a recession,” a White House letter addressed to state and local governments said. “Economic growth would falter, unemployment would rise, and the labor market could lose millions of jobs.”

The recession would hit state and local governments hard, the White House warned. “If the U.S. defaults on its debt — cities and states could experience a double-whammy: falling revenues and no federal aid as long as Congress refuses to raise or suspend the debt limit,” the letter said. “This means critical state services will be at risk for budget cuts, from education to healthcare to pensions.”

A plea for bipartisan cooperation: At a meeting of the U.S. Conference of Mayors Friday, Democratic Mayor Nan Whaley of Dayton, Ohio, issued a plea for lawmakers to work together to address the debt ceiling.

“Both parties in Washington have added to our debt, and both parties have an obligation to make sure the United States can continue to pay its bills,” Whaley said. “This is one of the most basic responsibilities of Congress, and there is no good reason for lawmakers to create a crisis that undermines the full faith and credit of the United States.”

Column of the Day: Democrats Grow Squeamish About Taxing the Rich

Polls consistently find broad support for taxing the rich — but what exactly does that mean? Washington Post columnist Catherine Rampell points out that Democrats’ definition of “rich” has shrunk over time to “a teeny — and vanishing — group.”

President Obama drew the line for tax hikes at $250,000 in annual income. President Biden has moved it to $400,000. And Rep. Alexandria Ocasio-Cortez (D-NY), who wore a much-discussed gown that said “Tax the Rich” while attending the Met Gala this week, responded to critics in part by saying: “They want you to think that when we talk about rich, we’re talking about doctor or a lawyer instead of someone with hundreds of millions of dollars if not billions of dollars.”

Rampell notes that Democrats’ narrowed focus on the wealthiest of the wealthy comes as the Democratic base has changed to include more high-earning, college-educated constituents — but the tax changes proposed by House Democrats this month also leave plenty of breaks in place for the ultrawealthy.

The House plan, for example, stops well short of raising the capital gains tax to the match the tax rate in income, as President Joe Biden had called for, and it doesn’t eliminate the “stepped-up basis” provision that allows assets that have appreciated in value to be passed along to heirs untaxed. “This is a huge boon to anyone with dynastic-level wealth, since it means their fortunes can escape capital gains taxes,” Rampell explains. Democrats are also considering options to repeal or raise the $10,000 limit on state and local tax (SALT) deductions, another change that would benefit top-earners (see more on this below).

“Yes, Democrats plan to raise top rates on personal and corporate income taxes,” Rampell writes. “That’s not nothing. But it’s not nearly sufficient to pay for the generous welfare state Democrats want to build. Paying for that would ultimately require levying higher taxes on the middle class, too, as other countries with more expansive safety nets do.”

Read the full column at The Washington Post.

Restoring SALT Deduction Would Slash Dems’ Tax Hikes for Top Earners: Report

If Democrats’ budget plan restores the full deduction for state and local taxes, it would leave top earners facing much smaller overall tax hikes — or even tax cuts — according to data from the right-leaning Tax Foundation cited by Bloomberg News.

The top 1% of earners, those making more than $401,600, would see their after-tax incomes fall by 5% under the House Democratic plan. But if the $10,000 cap on SALT deductibility is eliminated, their after-tax hit would be just 1.9%. Taxpayers making between $165,181 and $401,600 would see an after-tax hit of 0.3% with the SALT cap in place turn to a gain of 0.9% with the cap lifted.

Restoring the full SALT deduction would cost about $85 billion a year over the next five years, according to the Committee for a Responsible Federal Budget, with most of the benefits of the change flowing to the top 1% of earners.

House lawmakers are reportedly considering options other than a full repeal of the cap, including a two-year suspension or an increase in the $10,000 deduction limit.

Ocasio-Cortez Calls for Unemployment Benefit Reform in $3.5 Trillion Spending Bill

Reps. Alexandria Ocasio-Cortez (D-NY) and Cori Bush (D-MO) are calling for the inclusion of major unemployment insurance reforms in the $3.5 trillion spending package that contains much of President Joe Biden’s domestic economic agenda.

In a letter Thursday to Democratic leaders, the pair, joined by 11 other House Democrats, said they wanted to “express the urgency of including unemployment insurance (UI) reforms in the Build Back Better Act to protect the millions of unemployed workers across this country.”

Citing the success of the temporary programs passed by Congress during the Covid-19 crisis, the group called on Democrats to revise the unemployment system so that it permanently includes part-time workers and establishes a minimum duration of benefits, among other reforms. The changes would be particularly important for workers from minority groups, who disproportionately work in low-wage jobs and live in states with weak unemployment systems, the group said.

“A strong and responsive UI system not only helps our entire economy more quickly and equitably recover from future recessions, it is also an essential tool to help dislocated workers stay connected to the workforce and to provide for their families as they seek new employment,” they said.

Number of the Day: $2.1 Billion

The Biden administration on Friday announced a plan to spend $2.1 billion to improve infection prevention and control across the U.S. health care system, the largest such investment in the country’s history.

“This funding will dramatically improve the safety and quality of the healthcare delivered in the United States during the pandemic and in the future,” said Dr. Rochelle Walensky, the director of the Centers for Disease Control and Prevention.

The CDC plans to distribute $1.25 billion of the funding to 64 state, local and territorial health departments over the next three years with the aim of helping prevent infections at health care facilities including hospitals and nursing homes. Another $880 million will be used over several years to “support healthcare partners, academic institutions, and other nonprofit partners” in developing measures to prevent and control infections.

There were 647,000 infections associated with care in acute care hospitals in 2015, including 72,000 deaths, according to the CDC estimates cited by Bloomberg News.

The new funding is part of the $1.9 trillion American Rescue Plan enacted in March.

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