Good Wednesday evening. Tomorrow morning we’ll get our first reading on economic growth in the third quarter, and Friday will bring new data on inflation and consumer spending. In the meantime, here’s what we’re watching while digesting the fallout from last night’s political debates.
Biden and GOP Hammer Away on Inflation and the Economy
In the final days before the 2022 midterm elections, President Joe Biden has sought to hammer home a closing message to voters concerned about the economy and inflation: He and his fellow Democrats are working to bring down costs for families; Republicans will make things worse if they win.
Biden was at it again on Wednesday, touting falling gas prices, a rules change that allows hearing aids to be sold over the counter, and a program that provides discounted or free broadband internet service to millions of Americans. Biden also announced new actions to protect Americans from "junk fees" such as surprise bank overdraft charges, some credit card late fees and hidden hotel booking costs.
The White House cited estimates that found that credit card late payment fees generated $12 billion in revenue for companies in 2020, while bank overdraft fees totaled about $15.5 billion as of 2019 and hotel resort fees came to nearly $3 billion in 2018. Baggage fees, meanwhile, produced about $6 billion in revenue for airlines last year.
"Today’s actions are going to save consumers more than $1 billion each year," Biden said at an event with the heads of the Consumer Financial Protection Bureau and the Federal Trade Commission. "And that’s a lot of money back in people’s pockets."
Biden then pivoted to a familiar attack on Republicans’ economic agenda:
Biden has warned that Republicans’ approach to the economy has failed and will fail again, while raising the risk of government shutdowns and … . Administration economists reportedly estimate that GOP proposals to repeal a new minimum corporate tax and extend some 2017 business tax cuts could add $90 billion to the deficit next year.
Democratic attacks may be getting sharper, but the fundamental message is one that Biden has been repeating for some time now. "Biden’s new tone reflects the success Republican candidates have found in blaming the president and his party for the high price of food and gas, as well as for perceived increases in crime and immigration," The Washington Post’s Toluse Olorunnipa writes, adding, "While Biden’s attacks have grown fiercer as the election has drawn nearer, the strategy of calling out Republican economic plans traces back several months to this spring, when Biden seized on the release of an 11-point policy document by Republican Sen. Rick Scott (Fla.)."
Yet Biden’s attacks do not appear to have done much to stem a surge of Republican polling momentum in the final days of the campaign. Warnings about what could happen in theory may be taking a backseat to concerns about actual economic conditions at the moment. Polls indicate that Americans trust Republicans more on the economy and inflation. And Republicans have been mounting economic attacks of their own, stoking anger about inflation and fear about Biden’s agenda.
"They have pledged to reduce government spending and to make permanent parts of the 2017 Republican tax cuts that are set to expire over the next three years — including incentives for corporate investment and tax reductions for individuals," note Jim Tankersley and Emily Cochrane at The New York Times. "And they have vowed to repeal the corporate tax increases that Mr. Biden signed into law in August while gutting funding for the Internal Revenue Service, which was given more money to help the United States go after high-earning and corporate tax cheats."
While Republicans promise to cut inflationary federal spending, Tankersley and Cochrane report that few economists think that the GOP’s economic agenda will do much to reduce near-term price increases. "Instead," they write, "many say some of what Republicans are proposing — including tax cuts for high earners and businesses — could actually make price pressures worse by pumping more money into the economy."
The magnitude of short-term federal spending cuts needed to have an effect on inflation would cause pain throughout the economy. "The amount of cuts you’d have to do to move the needle on inflation are completely off the table," Jon Lieber, a managing director at the Eurasia Group and former aide to Republican Senator Mitch McConnell of Kentucky, told the Times.
The bottom line: The Republican agenda may not do much to fight the inflation they keep blaming on Biden and his policies — and their plans for a possible debt limit showdown carry tremendous risks for the economy. It might not matter on Election Day. Biden has tried to cast the midterms as a choice, not a referendum on his administration, but voters get to have their own say.
A New Proposal to Cut the Debt and Fight Inflation
The Committee for a Responsible Federal Budget on Wednesday issued a model deficit-reduction plan that it says would put the United States on a sustainable fiscal path and secure the solvency of Social Security and Medicare trust funds while also helping to fight inflation.
"Ideally, debt should be gradually reduced to its half-century historical average of about 50 percent of GDP," the group says. "Given political constraints, we suggest at least stabilizing the debt at its current level within a decade, requiring roughly $7 trillion in savings."
The deficit reduction would be achieved through a mix of savings, spending cuts and tax increases, including about $1.5 trillion in health care savings, $1 trillion in new income tax revenue, $1.5 trillion in discretionary spending cuts, $500 billion of energy and infrastructure savings, $1 trillion from Social Security reforms that would both raise more from taxes and raise the retirement age, $500 billion of other savings, and $1 trillion from reduced interest payments.
Overall, about 40% of the deficit reduction in the blueprint would come from higher revenue and 60% from changes in spending. (That’s roughly the same balance as the Bowles-Simpson deficit reduction plan from a decade ago.)
The group estimates that the plan would cut debt to 94% of GDP and bring deficits below 3% while potentially reducing near-term inflationary pressures by about 1 percentage point. It warns though, that the national debt would remain high by historical standards. "While all incremental improvements to the budget outlook are welcomed – and enacting even a $1 trillion deficit reduction plan would be an important step in the right direction – our plan should be viewed as the minimum of what is ultimately needed," it says.
Number of the Day: $73,812
A drug patented in 1973 that targets prostate cancer now costs $73,812 for a two-shot treatment, according to a report at Kaiser Health News. Abbott Laboratories has extended the patent on the drug, leuprolide, by developing a slow-release version, while raising the price year after year. In 2000, the average wholesale cost of the two-shot treatment was about $2,500. In the U.K., doctors can purchase the drug for about $500.
KHN’s Arthur Allen says the drug is a good example of "unrelenting price increases on old drugs that have remained branded as manufacturers find ways to extend patents for decades and maintain sales through marketing."
$1 Billion for Electric School Buses
The Biden administration is putting nearly $1 billion in subsidies toward new electric and low-emission school buses, the White House announced Wednesday. The funds come from the $1.2 trillion Infrastructure Investment and Jobs Act, also known as the Bipartisan Infrastructure Bill, that Congress passed last November.
The federal subsidies are meant to speed the process of cleaning up the transportation network that carries about 25 million children to and from school every day, with much of the travel occurring on bright yellow, diesel-powered buses.
Speaking at an event in Seattle, Vice President Kamala Harris said that "today, 95 percent of our school buses are fueled with diesel fuel, which contributes to very serious conditions that are about health and about the ability to learn. So, when I think about what the experience should be for our children of going to school on the school bus, I think about the fact that it should be about maximizing that experience for them, understanding that this bus symbolizes so much about our collective investment in our future."
The subsidies will help school districts in all 50 states purchase 2,463 new buses, 95% of which will be electric. Though they are typically identical in appearance, electric buses can cost as much as four times more than conventional diesel buses.
In addition to the environmental benefits, the program is intended to boost domestic manufacturing and the development of clean technologies. The White House said it expects to dedicate $5 billion to the project over five years.
- Biden’s Closing Argument: Republicans Would Trash the Economy – Washington Post
- Republicans Denounce Inflation, but Few Economists Expect Their Plans to Help – New York Times
- A Fiscal Plan for the Moment – Politico
- A Debt Ceiling Showdown in Congress Could Send Us Economy Into Tailspin – The Hill
- Biden Officials Worry Pandemic Exhaustion Could Lead to Bad Covid Winter – Washington Post
- Inside the House GOP Effort to Keep Weapons Flowing to Ukraine – CNN
- U.S. Aid Program to Keep People Online Was Riddled With Deception, Fraud – Washington Post
- European Allies Worry U.S. Could Dial Back Support for Ukraine – Washington Post
Views and Analysis
- Politicians Are Arguing Again About Social Security. That’s Good – Howard Gleckman, Tax Policy Center
- Fed Pullback? Not If It's Watching the Bond Market Closely – Conor Sen, Bloomberg
- Markets Didn’t Oust Truss. The Bank of England Did – Narayana Kocherlakota, Bloomberg
- Democrats Govern, Republicans Bulldoze. Just Look at Ukraine – Jonathan Bernstein, Bloomberg
- The Crises That Overturned Our Politics – Stanley R. Greenberg, American Prospect
- Biden Slips — and Exposes the Truth About the Inflation Reduction Act – Marc A. Thiessen, Washington Post
- Voters Clearly Think There Are Bigger Issues Than Election Denial – Gary Abernathy, Washington Post