Dems Zero In on a Rapidly Shrinking Agenda

U.S. President Joe Biden participates in a town hall with CNN's Anderson Cooper in Baltimore
JONATHAN ERNST
By Yuval Rosenberg

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.

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