Biden, Dems Take an Axe to Their Spending Plan

U.S. President Joe Biden visits Pennsylvania
JONATHAN ERNST
By Yuval Rosenberg

Happy Wednesday! Democrats sure sound
cheerier than they did just a few days ago. Here's what you need to
know.

Biden, Dems Take an Axe to Their Spending
Plan

Democrats emerged from a series of meetings this week sounding
increasingly optimistic that they can pull together a consensus
framework for their multi-trillion-dollar social spending package —
and possibly even do it by the end of the week.

“We’re getting closer to an agreement,” Senate Majority Leader
Chuck Schumer (D-NY)
said Wednesday. “We want to finalize a deal by the
end of this week, but we all must keep moving together.”

President Joe Biden on Tuesday reportedly reiterated that he’s
now looking for about $2 trillion in new spending over 10 years,
though the final total may end up somewhat lower, between $1.75
trillion and $1.9 trillion. Biden also laid out the potential
details of a scaled-back package in a meeting with
progressives.

“There’s an anticipation of some deep cuts," said Sen. Ben
Cardin (D-MD). “I think the major parts will remain in place, maybe
not quite as strong, maybe not quite as long."

Yet while momentum may be building after weeks and weeks during
which Democrats seemed to be clashing more than compromising, the
White House and lawmakers still face plenty of tough decisions and
inevitable pushback from factions trying to protect their
priorities.

Here's what may be cut or scaled back in the Biden plan:

A four-year extension of the expanded child tax credit:
Biden has touted the power of the tax credit to slash child
poverty, and progressives had hoped to make the credit permanent.
The House version of the Build Back Better plan included a
four-year extension through 2025, but Biden reportedly suggested
that the extension could be shortened to just one year or possibly
two, a change that could cut the overall cost of the bill by as
much as $400 billion.

A four-year extension may have made the tax credit an issue in
the 2024 presidential election, Goldman Sachs analyst Alec Phillips
said in a note to clients Wednesday. “A 1-2 year extension suggests
that Democrats might instead be focused on making this more of an
issue ahead of the midterm election, instead,” Phillips added. “It
also raises the possibility that Democrats will propose a further
extension next year in separate legislation once the reconciliation
bill has been enacted.”

But some Democratic leaders are insisting on keeping the
four-year extension that was included in the House version of the
bill. "A one-year extension is a big mistake," Rep. Rosa DeLauro
(D-CT), chair of the House Appropriations Committee,
said. And Rep. Richard Neal (D-MA), chair of the
House Ways and Means Committee, told reporters he’d keep fighting
for what was in the House package. “I think family paid medical
leave, I think that the child [tax] credit, I think the dependent
care credit — and the Green Act, for sure — ought to remain in the
final package as issued."

Two years of free community college: Biden hinted in
remarks last week that his plan to make community college
tuition-free might not make it into the final legislation, and
Democratic lawmakers reportedly have confirmed that the plan is
likely to be left aside for now, disappointing progressives. The
free tuition plan included in House Democrats’ reconciliation
package would have cost about $45.5 billion over five years,
according to
NPR.

Tax rate increases on corporations and the rich:
Democrats have proposed raising the corporate tax rate from the 21%
set by the 2017 Republican tax overhaul, with the House version of
the Build Back Better Act lifting it to 26.5%. Democrats also have
proposed restoring a top individual tax rate of 39.6% and raising
the top capital gains rate from 23.8% to 28.8%.

Those proposals may all be in some jeopardy because Sen. Kyrsten
Sinema (D-AZ) has reportedly made clear that she opposes raising
those rates. “[H]er stance is now pushing Democrats to more
seriously plan for a bill that doesn’t include those major revenue
increases,” The Wall Street Journal
reports. “Other planks of President Biden’s tax
agenda, including tightening the net on U.S. companies’ foreign
earnings and enhancing tax enforcement by the Internal Revenue
Service, are still on the table, according to one of the people
familiar with the matter.”

Scrapping the proposed rate increases would leave Democrats with
a huge revenue hole to fill, even as they pare back their spending
plans. “In the House bill, the corporate tax rate increase was
projected to raise $540 billion over a decade while the tax rate
increases on ordinary income and capital gains would raise nearly
$300 billion,” the Journal notes.

12 weeks of paid leave: Lawmakers are reportedly looking
at changing their program to offer four weeks of paid leave for
people making under $100,000 or $150,000 a year.

Hundreds of billions in health care spending: Bloomberg

reported that lawmakers are discussing limiting
health care spending in the package to less than $250 billion,
while CNN
said that Biden told lawmakers that funding for
homecare for the elderly and disabled would be reduced from $400
billion to less than $250 billion. “This would actually be an
increase,” writes Phillips of Goldman Sachs, “as the House-proposed
version includes $190bn for the new benefit (though advocates have
said that the proposal might not work with less than $250bn). We
would expect that neither report reflects what is likely to be in
the final version of the bill, and that health spending is greater
than $250bn overall but that the Medicaid home care portion is less
than $250bn.”

A key clean energy program: As previously reported, the
Clean Electricity Performance Program, a $150 billion plan to push
energy producers toward wind, solar and nuclear power, is likely
not going to make the cut. Democrats are looking at other ways to
meet Biden’s goal of reducing emissions by 50% by the end of the
decade and the administration is reportedly exploring
administrative actions that could help reach their target.

The bottom line: Democrats’ budget reconciliation bill is
likely to end up about half the size of the original $3.5 trillion
proposal. The package is still far from final, and many details
remain in flux. But Biden and lawmakers are operating with an
increased sense of urgency and say they’re making progress.

Chart of the Day: Covid Trillions

Governments around the world have spent about $10.8 trillion in
response to the Covid-19 crisis, with about half of that coming
from the U.S., says
economics writer Matthew C. Klein, citing recent data
from the International Monetary Fund. Today’s supply bottlenecks
and elevated inflation are a direct consequence of this huge surge
in spending, but in Klein’s analysis, they’re a small price to pay
for avoiding an economic calamity that could have been worse than
the Great Depression.  

“It would have been weird if a global pandemic that’s shut down
large swathes of business activity and has killed more than ten
million people worldwide had no economic or financial cost,” Klein
writes. “Yet in most rich countries, consumers are richer than
before, workers’ wages are higher, and businesses are flush with
cash. If most people had known—at the end of 2019—what the body
count was going to be and what the current state of the economy
would be, they would be amazed at how well things had turned
out.”

Klein argues that inflation so far has been relatively modest,
and reflects a healthy increase in demand, particularly for
physical goods. “The pandemic itself was the problem,” Klein says.
“If the biggest complaint we can muster now is that we have to wait
a few extra months for a new couch, or that it costs more than we’d
like to buy a new car, or that ‘it’s so hard to find good help
these days,’ my answer is: that’s what success looks like.”

House Eyes Bill Giving Treasury Power to Lift Debt Ceiling

A bill introduced last month by Rep. Brendan Boyle (D-PA), vice
chairman of the Budget Committee, would give the U.S. Treasury
Department the authority to raise the nation’s debt ceiling on its
own, without input from Congress.

At a press conference Tuesday, House Majority Leader Steny Hoyer
(D-MD) said the bill may offer a “viable” way to end the partisan
conflict over the debt limit.

Hoyer noted that Senate Minority Leader Mitch McConnell (R-KY)
proposed giving the Treasury some control over raising the debt
limit in 2011. “Now, of course, the fact that he made that does not
mean he would support it, which is sad,” Hoyer said.

The Boyle bill has one key difference from the bill offered by
McConnell: It would give the Treasury Secretary full authority over
changes in the debt ceiling, effectively ending congressional
control. In 2011, the McConnell proposal made a limited increase in
the debt limit by the Treasury subject to a "resolution of
disapproval” by Congress, giving lawmakers the option to intervene
in the process.

Whatever form it takes, Hoyer has pledged to vote this fall on
legislation that would provide a long-term solution to the debt
ceiling, which will need to be addressed again as soon as early
December.

“The House will explore options to remove the threat that the
debt limit poses over the long term, now that Republicans have
demonstrated a willingness to weaponize it for partisan purposes,”
Hoyer wrote in a letter to Democratic lawmakers last weekend. “The
House may consider legislation as early as this month to do
so.”

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