You wouldn’t know it from looking at his approval ratings, but President Joe Biden has been putting together quite a streak of successes.
On the economy, gas prices have been falling for more than 50 straight days, and Friday brought another blockbuster monthly jobs report, with gains far surpassing analysts’ expectations (see more below). On the legislative front, Biden next week is scheduled to sign into law two major bills that passed Congress with bipartisan support — one boosting the U.S. semiconductor industry and scientific research and the other expanding health care benefits for veterans exposed to toxic burn pits. Those bills follow the first major gun safety legislation enacted in nearly 30 years. And Democrats are set to deliver Biden another big win, as Sen. Kyrsten Sinema (D-AZ) on Thursday evening announced she would back the party’s budget reconciliation package of climate, tax and health care measures.
Here's what you need to know.
Sinema Gives Democratic Plan the Green Light
After 18 months of infighting, frustration and failure, Democrats are on the verge of passing a version of their economic and climate legislation that, while scaled back from their grand initial aspirations, nevertheless would represent a landmark achievement.
The party came one step closer Thursday evening when Sen. Kyrsten Sinema (D-AZ) announced she would agree to “move forward” with the legislation, dubbed the Inflation Reduction Act, pending approval by the Senate parliamentarian.
Sinema’s sign-off came after Senate Democrats agreed to a number of changes she had sought, including the removal of a provision narrowing the so-called carried-interest tax loophole that allows hedge fund and private equity managers to pay a lower rate on some of their profits. Democrats also modified their proposed 15% corporate minimum tax to address Sinema’s concerns that it might hurt U.S. manufacturing businesses. And they agreed to provide billions in drought funding Sinema had sought.
Sinema’s interest in carried interest: Senate Majority Leader Chuck Schumer said Friday that Sinema left Democrats “no choice” but to drop the carried-interest provision, which had been expected to raise $14 billion in revenue over 10 years. “Senator Sinema said she would not vote for the bill, not even move to proceed unless we took it out,” he said. “So we had no choice.”
In her announcement Thursday evening, Sinema said that she would work with Sen. Mark Warner (D-VA) on reforms to carried interest tax law, “protecting investments in America’s economy and encouraging continued growth while closing the most egregious loopholes that some abuse to avoid paying taxes.”
Adding a new tax on stock buybacks: To make up for the revenue lost to those tax changes, Democrats added in a 1% excise tax on stock buybacks that will reportedly raise $74 billion over 10 years — more than would have been generated by the provisions that were dropped.
Sinema’s influence: The Arizona senator may have been left out of private negotiations between Schumer and Sen. Joe Manchin (D-WV), the other centrist holdout. But as Lisa Mascaro of the Associated Press points out, she ultimately played a huge role in shaping the legislation in ways that have drawn scorn, particularly from progressives, but sometimes from conservatives as well.
“It was Sinema early on who rejected Biden's plan to raise the corporate tax rate from 21% to 28%, as she broke with party's primary goal of reversing the Trump-era tax break Republicans gave to corporate America,” Mascaro notes. “Sinema also scaled back her party's long-running plan to allow Medicare to negotiate lower drug prices with the pharmaceutical companies as a way to reduce overall costs to the government and consumers. She limited which drugs can be negotiated.”
What’s next: The Senate is due to return to session Saturday at noon, with a vote on the motion to proceed to the reconciliation bill expected sometime later in the day. After up to 20 hours of debate, the Senate will begin a “vote-a-rama,” an unlimited series of amendment votes. The vote-a-rama is “going to start later than we imagine, it’s going to run longer than we would hope and it’s going to be more painful getting out of here than any of us have any reason to expect,” said Sen. Chris Coons (D-DE). And Sen. Lindsey Graham (R-SC) predicted that Republicans would look to make the vote-a-rama feel “like hell” for Democrats.
The bottom line: Now that Sinema is on board, the Senate could be set to pass the reconciliation bill as soon as Sunday evening, or more likely by Monday or Tuesday. The House would then follow, meaning Biden could be celebrating another major White House signing ceremony within days.
What Recession? Jobs Growth Surges in July
The red-hot job market added a few degrees of heat in July as payrolls grew by 528,000, the Labor Department reported Friday, smashing expectations and smothering growing concerns about a possible recession.
The unemployment rate fell, too, dropping to 3.5% – tying a 50-year low set in 1969 and touched again just before the pandemic began in 2020.
In raw numbers, the economy has now recovered all the jobs lost during the pandemic. Job growth was strong across all sectors in July, though the composition of employment has changed over time, with some industries growing and others shrinking during the last two-and-a-half years. One notable laggard: state and local government employment is still more than half a million jobs below where it was in early 2020.
Recession arguments muted: A growing chorus of analysts had expressed concerns in recent weeks that the economy is in or near a recession, based in part on two consecutive quarterly reports of negative GDP growth this year, but also on the assumption that the Federal Reserve’s campaign against inflation would inevitably cause a slowdown. But today’s report confirms once again the post-pandemic economy (which maybe should be called the late-pandemic economy given the high levels of Covid-19 transmission still being recorded) is odd in many ways, with inflation playing havoc on consumers’ spending patterns and expectations, even as the labor market remains exceptionally tight.
Overall, the jobs report suggests the economy is going strong, despite the negative GDP reports. “Economies in recession do not produce 528,000 jobs on a given month and have 3.5% unemployment rates,” said Joseph Brusuelas, chief economist at RSM. “Thus, claims that the economy fell into recession or is in recession fall flat and should be politely set aside.”
Democrats celebrate: President Joe Biden was happy to take credit for the strong report, saying in a statement that it reflects his “economic plan to build the economy from the bottom up and middle out.”
House Budget Committee chair John Yarmuth also highlighted the positive economic data, saying in a statement: “In President Biden’s economy, more Americans are working than at any other point in American history, wages are rising, and the well-being of working families is the priority. Our economy has created more than 9.5 million jobs since President Biden took office, thanks in no small part to the American Rescue Plan and President Biden’s unprecedented vaccination initiatives.”
But the Fed would like a word: The sizzling jobs report does suggest, however, that the Fed will continue to tighten monetary conditions, much to the disappointment of those who were hoping the central bank was getting ready to ease its campaign against inflation. “The July jobs report blew the doors off expectations,” said JPMorgan’s Michael Feroli. “Today’s numbers should mollify recession fears but amplify concerns that the Fed has a lot more work to do.”
Many analysts noted that wage growth accelerated in July, with average hourly wages rising 0.5% from the month before, equal to a 5.8% annual rate. That rate is still below inflation, meaning workers are actually worse off on average, but is still well above what the Fed was likely expecting or comfortable with, raising the odds that the central bank will deliver another 75-basis-point rate hike in September.
“The most concerning thing in this report is that we didn’t see the expected moderation in wage growth,” Karen Dynan, a former chief economist at the Treasury Department, told The Washington Post. “To be clear, strong wage growth does benefit workers in the short run. But the current pace of wage growth is not consistent with low inflation over the longer run.”
Calling it an “uncomfortably hot jobs report,” former Obama administration economist Jason Furman said it was “nice to see this many jobs added but it is scary about what it means for the size of the adjustment we may have coming.”
The bottom line: Another sizzling job report is good news for working Americans, but makes it that much more likely that the Fed will continue to take aggressive steps to slow the economy in the coming months.
- Ahead of Weekend Debate, Schumer Says Economic Package a ‘Very, Very, Very Big Deal’ – Washington Post
- The Carried Interest Loophole Survives Another Political Battle – New York Times
- Democrats Go With ‘The Least Bad’ Tax – Politico
- Wealthy Americans Escape Tax Hikes in Bill but Would Face Beefed-Up IRS – Bloomberg
- Democrats’ Long-Sought Plan for Lowering Drug Costs Is at Hand – New York Times
- Democrats’ Reconciliation Bill to Include $4 Billion in Drought Relief – Washington Post
- Pharma Group Leader Says Dems Who Vote for Reconciliation Bill 'Won't Get a Free Pass' – Politico
- ‘Sizzling’ US Jobs Data Make Case for Bigger Fed Rate Increases – Bloomberg
- Summers Warns of ‘Economic Distress’ as Fed’s Powell Holds Out Hope – Politico
- Biden Signs Bills Tackling COVID Relief Fraud Into Law – CNN
- Federal Salaries Lag 22.5 Percent Behind Private Sector, Report Finds – Washington Post
Views and Analysis
- We Can Finally Retire the Scariest Jobs Chart You’ll See Today – Catherine Rampell, Washington Post
- Unemployment Heads in the Wrong Direction for the Fed – Jonathan Levin, Bloomberg
- Go Ahead, Democrats: Take Credit for the Terrific Jobs Numbers – Paul Waldman, Washington Post
- Joe Biden Is on Fire — Signing Bills and Killing Terrorists, but He Still Can’t Catch a Break – John T. Bennett, Roll Call
- Republicans Flail and Fail on Taxes – Paul Krugman, New York Times
- Sinema’s Tax Tweaks – Katherine Tully-McManus, Politico
- The Carried-Interest Loophole Is the Unkillable Totem of Capital's Hold on Politics – Charles P. Pierce, Esquire
- Wonking Out: The Meaning of Falling Inflation – Paul Krugman, New York Times
- Republicans Are Coming After Social Security. Democrats, Take Note – Helaine Olen, Washington Post