It’s Friday! Democrats couldn’t meet their soft deadline to cement a deal on their budget reconciliation package by today, but talks will continue over the weekend … and likely into next week. Here's where things stand as we wait for the Astros and Red Sox to start their Game 6.
Democrats Zero In on a Rapidly Shrinking Agenda
Democratic leaders are projecting optimism that they be able to reach a deal on President Joe Biden’s economic agenda soon, though they aren’t there yet — and they’re still scrambling to work out how to pay for it.
"I do think I’ll get a deal," Biden said at a CNN town hall event Thursday night, adding that negotiations were down to four or five outstanding issues. "I think we can get there," he said.
House Speaker Nancy Pelosi (D-CA) echoed that Friday after a morning meeting with the president and Senate Majority Leader Chuck Schumer (D-NY). "There are many decisions that have to be made, but more than 90 percent of everything is agreed to and written," Pelosi told reporters.
Talks will continue over the weekend, and Punchbowl News reported Friday morning that the White House is pushing for a House vote next week on both the economic package that Democrats want to pass via the budget reconciliation process and a $1 trillion bipartisan infrastructure bill.
Locking down the final details of the budget reconciliation bill likely won’t be easy, though.
Biden was remarkably candid at the town hall event about the state of negotiations, highlighting the challenges that Sens. Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ) have presented in objecting to various elements of the legislation.
He confirmed, for example, that his plan to provide two years of tuition-free community college has been dropped from the package after Manchin and "one other person" said they wouldn’t support it.
Biden also acknowledged that the paid leave provision in the bill has been reduced from 12 weeks to four. "The reason it’s down to four weeks is we can’t get 12 weeks," he said.
And he said that a proposed expansion of Medicare coverage to include dental, hearing and vision — a priority for many progressives — would be "a reach" as Manchin and Sinema both oppose it. Manchin "doesn't want to further burden Medicare so that — because it will run out of its ability to maintain itself in the next number of years," Biden said. "There's ways to fix that, but he's not interested in that part, either."
Biden said that Sinema does support providing help for people to cover hearing aid costs, and he floated a plan to provide an $800 voucher to cover dental work for Medicare beneficiaries.
A new tax plan: Biden also said that Sinema is against raising tax rates on corporations or the wealthy. "She says she will not raise a single penny in taxes on the corporate side and/or on wealthy people. Period," he said, "And so, that’s where it sort of breaks down."
With Sinema single-handedly pulling the plug on planned tax rate hikes, Democrats are scrambling to find new revenues to help offset the cost of the social spending plan – and the roughly 700 billionaires in the U.S. are increasingly being seen as a key source.
Senate Finance Chair Ron Wyden (D-OR) is reportedly drafting a plan to tax the assets owned by billionaires, based on an assumption that Sinema will support that approach. Under the Wyden plan, anyone with assets worth $1 billion or income of $100 million three years in a row would have to pay taxes on the tradable assets they own — a major change from the current system, which generally taxes assets only when they are sold.
To start, billionaires would assess the current value of their tradable assets — which include stocks, bonds, real estate and art — and pay a one-time tax on the increase in value since those assets were acquired. Moving forward, billionaires would pay taxes on the growth of those assets on an annual basis, using a "mark to market" system to determine values. Losses would be recognized as well, through deductions.
"The Billionaires Income Tax is about fairness and showing the American people taxes aren’t mandatory for them and optional for the wealthiest people in the country," Wyden said in a statement. "No working person in this country thinks it’s right that billionaires can pay no taxes for years on end, and sometimes never at all."
Wyden says a billionaire tax is a political winner for Democrats. "It clearly connects in some of the most challenging political communities in the country — it makes Build Back Better enormously more popular," he told The New York Times. "I’d like to see elected officials stand up and say, ‘Hey, I don’t think billionaires ought to pay any taxes.’"
Support not guaranteed: While Sinema has not explicitly endorsed the billionaire tax, aides in the Senate say that no Democrats have expressed opposition to the plan. House Democrats, however, may be a tougher sell.
House Ways and Means Chair Richard Neal (D-MA) expressed concerns that the Wyden plan could "become really complex," and some Democrats told The Washington Post that they were wary of creating a whole new tax system in just a few days.
Republicans are expected to oppose the plan, though their votes won’t be needed under the current plan to use budget reconciliation to pass the package. Sen. Mitt Romney (R-UT) told the Times the tax was a "very bad idea" that would distort the behavior of the very wealthy. "People are rational beings," he said. "They’d move away from tradable assets, and then go to untradable assets. And that means that you’re going to have a depression on things like venture capital, private equity, in the stock market and people’s 401(k)s."
Surging Tax Revenues Trim Deficit to $2.8 Trillion, Still the Second Largest Ever
The federal budget deficit totaled $2.8 trillion in fiscal year 2021, the U.S. Treasury Department announced Friday. The results were in line with the estimate released by the Congressional Budget Office two weeks ago.
Surging tax payments helped trim the deficit, which ended up $360 billion smaller than the record level reported in 2020, and $897 billion less than projected by the White House in February.
Government spending rose 4.1% to $6.82 trillion in fiscal year 2021, the Treasury Department said, while tax receipts topped $4 trillion, $465 billion higher than White House estimates.
Relative to the size of the economy, the deficit equaled 12.4% of gross domestic product, down from 15% in fiscal year 2020.
Though the deficit is still at unusually high levels, Treasury Secretary Janet Yellen said the fact that it is starting to shrink is a good sign. "Today’s joint budget statement is further evidence that America’s economy is in the midst of a recovery," Yellen said, attributing the positive momentum to the Biden administration’s American Rescue Plan.
At the same time, Yellen warned that the recovery is still "fragile," and called for Congress to pass Biden’s Build Back Better plan, which she said would help "grow the economy, help workers and families, and strengthen our nation’s long-term fiscal outlook."
The CBO estimates that the deficit will fall to $1.15 trillion in fiscal year 2022 and dip below $1 trillion for three years before climbing above $1 trillion again through 2031.
Analysis of the Week: The Democratic Debate Over Deficits and Social Spending
Neil Irwin of The New York Times this week detailed how competing schools of thought related to deficits, the national debt and social spending have influenced the current Democratic debate over President Biden’s "Build Back Better" economic plan.
At The Upshot, Irwin writes that mainstream economic thinking has shifted over the last decade or so, as interest rates have stayed at historically low levels even as the government ran large annual deficits that added trillions to the public debt: "That implies the United States can maintain higher public debt than once seemed possible without excessively constraining private investment or facing excessive interest costs."
At the same time, Irwin adds, many economists have also adjusted how they weigh the risks and rewards of certain social spending programs. "If we give people more resources when they’re young, they can eat better and do better in school, and this could have lasting impacts," Hilary Hoynes, a professor at the University of California, Berkeley, tells Irwin. "It doesn’t seem like such a crazy thing to assert, but we had no evidence on that 15 years ago."
Those new lines of thought, bolstered by the empirical evidence of the last 12 years, underpin Biden’s "care economy" plan.
Courting a fiscal crisis? Irwin notes that some Democrats — and economists — have not adopted this new thinking, instead "holding to a view that was more widespread in the early Obama years, focusing on the risks of debt and spending. … In the older view, it is irresponsible to increase long-term budget deficits because it will curtail private investment and risk a fiscal crisis. Social policies should be seen as a zero-sum trade-off between alleviating poverty and encouraging work. And any major new spending should be coupled with enough revenue-raising measures that the number-crunchers at the Congressional Budget Office conclude the numbers will balance over the next 10 years."
More conservative-leaning economists still hold this view and warn that the new approach to public finance could be playing with fire. "Any economic policy that begins with the premise, ‘Let’s just assume interest rates stay below 2008 levels forever,’ is extraordinarily hubristic and naïve," Brian Riedl, a senior fellow at the conservative Manhattan Institute, tells Irwin. "Particularly because there is no backup plan if they are wrong and rates ever do revert to pre-2008 levels. At that point, the policies driving the debt will be nearly impossible to reverse, and we could face a severe fiscal crisis."
That’s the core argument Sen. Joe Manchin (D-WV) has made in objecting to spending trillions more and warning against a shift toward what he called "an entitlement society."
The bottom line: As Democrats try to reach a deal on a multi-trillion-dollar economic package, these competing views of deficits and social spending have made it harder for them to agree on what building back better should really look like.
Read the full piece at The Upshot.
- Why Democrats Should Prepare for Years of Headaches – Paul Waldman, Washington Post
- Biden Returns to Retail Politics to Rescue His Biggest Deal Yet – Stephen Collinson, CNN
- How Not to Let Corporations Kill Biden’s Agenda – Paul Krugman, New York Times
- The GOP Rebrands Itself as the Party of Tax Cheats – Catherine Rampell, Washington Post
- Why Biden, a Senate Success, Is a White House Mess – Henry Olsen, Washington Post
- Democrats Stare Into the Abyss – Ronald Brownstein, The Atlantic
- Health Care Employment Is Rising. Is That a Good Thing? – Peter Coy, New York Times
- How the Supply Chain Broke, and Why It Won’t Be Fixed Anytime Soon – Peter S. Goodman, New York Times
- Why the Supply Chain Crunch Will Continue Into 2022 – Daniel Yergin and Peter Tirschwell, Washington Post