$3.5 Trillion Human Infrastructure Bill Contains Essential Provisions
As I write this the first week of September, it appears that the House Democrats have arrived at a compromise --- keeping the ball rolling on both the $1 trillion bi-partisan infrastructure bill that had passed the Senate and the proposed $3.5 trillion “human infrastructure bill” that can only pass the Senate through reconciliation. This required a delicate balancing act by the Speaker of the House, Nancy Pelosi. She, President Biden, and virtually all Democrats in both Houses of Congress want both bills to pass but in the end they are going to need almost all the House Democrats to be on board and they cannot lose even ONE Democratic Senator for the reconciliation vote on the $3.5 trillion one.
The reason this involves a delicate balancing act is because the Democratic Party is a fragile coalition of what I call “corporate Democrats” -- the kind that act as if American businesses were the most important institutions in the country -- and self-described progressive Democrats which include avowed democratic socialists as well as plain old liberals. The corporate Democrats dominated policy-making under both President Clinton and President Obama. That is why neither Administration lifted a finger to protect the ability of workers to organize unions nor to defend public sector unions against various state laws, most notoriously in Wisconsin, designed to virtually defund them. That is why the only time a law was passed raising the minimum wage in either Administration was after the Republicans took over Congress in 1995 during Clinton’s first term.
[For details of the nominal value of the minimum wage going all the way back to 1938 --- remember this does not take account of inflation – see https://www.dol.gov/agencies/whd/minimum-wage/history/chart]
The dominance by corporate Democrats is also revealed by noting that Clinton claimed his economic policy success was based on so-called “fiscal responsibility.” In other words, Clinton’s ability to work with Congress to cut the budget deficit down to zero and actually achieve surpluses his last two years in office was his great achievement which, in the arguments of his supporters, explains the good economy at the end of the 1990s.
Actually, the reverse is more likely the truth. The economic boom of those last few years of the 20th century was in spite of, not because of, the reduction of budget deficits to zero. A lot of the spending that fueled the boom at the end of the decade occurred because of an unsustainable bubble in the stock market. In fact, that actually led to a rapid rise in federal tax revenue which in turn eliminated the deficit. The stock market bubble allowed well off people to cash in their realized capital gains which in turn ended up raising a tremendous amount of federal revenue. With the deflating of that bubble in 2001, capital gains realizations fell dramatically as did tax collections.
[The Tax Foundation has a table going back to 1954 showing realized capital gains in current dollars, the realized capital gains as a percentage of GDP, and the total revenue raised by taxing capital gains. This is available at https://taxfoundation.org/federal-capital-gains-tax-collections-historical-data/. Between 1995 and 2000, the percentage of GDP declared as realized capital gains went from 2.35 percent to 6.23 percent – and note this is a period during which GDP was itself growing very rapidly. The tax revenue received by the Federal Government from those capital gains realizations went from $44.2 billion in 1995 to $111.8 billion in 1999 and topped out at $127.3 billion in 2000. Another table from the Tax Foundation gives federal revenue from different sources --- see https://taxfoundation.org/federal-tax-revenue-source-1934-2018/ Total revenue from the individual income tax went from $590.2 billion in 1995 to $879.5 billion in 1999 and topped out at $1 trillion $4.5 billion in 2000. The percentage of the individual income tax collected from those who cashed in their capital gains went from 7.5% to 12.7% during those years (and again remember this was a period during which individual income tax collections rose dramatically). Together with a colleague from Western New England University, Dr. Carlos Liard-Muriente, I wrote “A Critique of ‘Rubinism’ — Did Reduced Budget Deficits and the Brief Experiences with Surpluses Cause the Economic Successes of the 1990s?” It was published in the Proceedings of the 11th Presidential Conference “William Jefferson Clinton: The ‘New Democrat’ from Hope” at Hofstra University, New York. My book, Surrender: How the Clinton Administration Completed the Reagan Revolution. (University of Michigan Press, 1998, 2000 [pbk] available on line for free) is a strong attack on so-called centrist Democratic policies. For Howard and Paul Sherman’s and my critique of Obama’s policies, see Principles of Macroeconomics: Activist vs. Austerity Policies 2nd Edition (Routledge, 2018) chapter 18.]
Despite the Obama’s Administration’s efforts to utilize a big fiscal stimulus to counteract the great recession in 2009 and 2010, they were forced to accept a smaller stimulus than recommended by most economists in order to get the votes of a handful of Republicans in the Senate. Later in 2011, Obama was forced to accept a restraint on further federal spending. The upshot was a very sluggish recovery which played a role in getting some white working-class voters who had supported Obama in 2008 and 2012 to vote for Trump in 2016.
The other part of the Democratic coalition, the Progressives epitomized by Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez, have decided that they are not going to permit the so-called “moderates” in their party (the ones I call corporate Democrats) to cut back on the important elements of President Biden’s domestic agenda. And there are probably close to 100 members of the self-described Progressive Caucus headed by Washington Representative Pramila Jayapal.
[They have their own website at https://progressives.house.gov In May of this year, 57 of them wrote a letter to Speaker Pelosi and (Senate) Leader Schumer urging that Democrats “go big” with policies to protect the environment and combat income inequality. The text of the full letter with all the signatures is here: https://jayapal.house.gov/wp-content/uploads/2021/05/Jayapal_Size-Scope-Speed-Letter.pdf]
In addition, members of the House Progressive Caucus had made it clear a while ago that they would not support the $1 trillion bill as a stand-alone because they feared that a few Senators and a few so-called Democratic moderates in the House would not pass the larger bill once the bi-partisan bill passed. Thus, the Progressives demanded both bills be passed at the same time in the House. Meanwhile, a group of ten so-called moderates in the House --- for whatever reasons – wanted a stand-alone vote on the $1 trillion dollar bill immediately. [I suspect many of them would be inclined to vote against the larger bill.]
For now, Pelosi has squared the circle by agreeing to a vote in the House on the smaller bi-partisan bill on or before September 27. This has set the stage for a fight in the Senate to get as much of the $3.5 trillion dollar proposal passed via reconciliation before September 27 so when the House votes on that bill, it will be ready for the President’s desk together with the bi-partisan $1 trillion bill that has already passed the Senate. This will not be easy as the Republicans in the Senate will try every delaying tactic at their disposal.
[For details of the conflict within the Democratic caucus and Pelosi’s solution, see Catie Edmondson, Luke Broadwater, Jim Takersley, “House Passes $3.5 Trillion Budget Plan for Vast Expansion of Safety Net: Democratic leaders had to haggle their way to passage, committing to moderates that there would be a vote on the $1 trillion bipartisan infrastructure plan by Sept. 27.” This article was published in the New York Times and is available at https://www.nytimes.com/2021/08/24/us/politics/house-budget-social-safety-net.html. The article identifies some of the fault lines within the Democratic caucus between the corporate democrats and the progressives with some direct quotes. That is what makes Speaker Pelosi’s job so challenging and her ability to square the circle so astounding.]
You get all that? Yeah, it’s complicated inside baseball. The point we as citizens need to understand is that the whole so-called “debate” between progressives and moderates within the Democratic caucus actually boils down to a relatively straightforward question: whether or not what is proposed in the $3.5 trillion “human infrastructure” bill is a worthwhile way to spend the taxpayers’ money. In discussions with friends, co-workers or your member of Congress, I urge all readers to focus on the specific proposals.
[The Republicans, of course, couldn’t care less about substance. It looks like none of them in the House will support either infrastructure bill. It was the same thing in 2009 when the Obama Administration was trying to pass the Reconstruction Act to combat the great recession. The Republican goal was to make Obama a one term President by obstructing everything he tried to do so he would fail. This was true even though unemployment ended up above 10% of the labor force and in early 2009, the economy was hemorrhaging 700,000 jobs a month! Despite the fact that there was a gap of over a trillion dollars in aggregate demand, requiring at least a trillion dollars of federal spending or tax cuts to close that gap, the constant complaining about the dangers of too much deficit spending forced the Administration to settle for a much smaller package. In the end, after the tax cuts and spending increases made it through the economy, the total stimulus totaled $739 billion. Obama’s capitulation to the moderates led to the sluggish recovery that, as I mentioned above, ultimately gave us Trump.
Thankfully, the demonization of deficit spending has now become part of the dustbin of history. Dick Cheney may have been optimistic in 2002 when he claimed “Reagan proved that deficits don’t matter” but it is certainly true that the Trump tax cut of 2017 and the massive deficit spending in 2020 which passed Congress virtually unanimously have buried all concerns with deficits today. So what is the complaint these days? Spending “too much.”
One Republican quoted in the above NY Times article put it this way, “A budget is supposed to put Washington on a sustainable fiscal path and help the American people keep Congress honest about its spending, … Unfortunately, Washington Democrats are using the budget as a political tool to unleash trillions in new spending and taxes and enact misguided policies.”
Let’s unpack this statement because in some ways it is quite revealing by what it doesn’t say. First of all, you don’t see the word deficit in there. That is a step in the right direction but this member of Congress still wants to take a bow to the deficit hawks by referring to a “sustainable fiscal path.” In the old days a “sustainable” path was a path to a balanced budget. (I bet very few readers know that a Constitutional Amendment mandating a balanced budget failed by just ONE VOTE to pass the Senate in 1995. Had it been sent to the States, I bet it would have passed!). In fact, however, a sustainable fiscal path could be one in which the ratio of the federal deficit to the GDP never gets above, say, six percent --- or one in which the ratio of the National Debt to the nation’s GDP remains constant, with the deficit growing at the same rate as the economy. There is nothing “unsustainable” about either of these last two examples.
Second point – yes, a budget is supposed to help the American people keep Congress honest about its spending. Unfortunately, most journalists who report on budget proposals never put them in context. They talk about billions, even trillions but they never say over how many years and they never say, this is X percent of the government budget or of the GDP. Think of this analogy. If I told you a business cleared $1 million in profit last year, would it say anything about whether the business was successful? You might think that $1 million is a good profit but what if the business had invested $100 million? A one per cent rate of return is ridiculously low. On the other hand, if the business had invested $5 million, that’s a 20 percent rate of return. $3.5 trillion is definitely a lot of money but remember, it is to be spent over the next decade. Over that same period the cumulative GDP of the United States is projected to be in the neighborhood of $13 trillion. The Congressional Budget Office predicts that the ratio of federal deficit spending to GDP will average 4.2 percent over that decade. Now please try and remember if you have ever heard a politician talk about big spending numbers with this kind of context or if you’ve ever read an article where a journalist attempted to do the same. Nope. They just throw around words like billion and trillion. They might as well just say, “big number!”
The next line about the budget being a political tool is amazing. Of course, a budget is a political tool. It represents the political, economic and social goals of government activity. And yes, the goal is to spend trillions of dollars on programs and people who need the money. By the way, the goal of fiscal sustainability is actually met when a budget “unleashes” spending and taxes. The taxes permit spending to rise without exploding the deficit. That is why the CBO predicted that deficit spending would remain a relatively low percentage of GDP over the coming decade. Finally, this member of Congress says it’s misguided spending. But he is afraid to identify which of the spending proposals are misguided.
And this brings me to a series of rhetorical questions. Which elements of the $3.5 trillion human infrastructure are opposed by the Republicans and so-called moderate Democrats and why?
Is it pre-kindergarten for 3 and 4 year olds? Free community college? Extending the refundable child tax credit for a few years? Paid family and sick leave? Legal status for millions of the undocumented? Expanded home and community-based care services for seniors and the disabled? Expanding Medicare to include dental, eyes, hearing?
Maybe it’s the climate stuff. West Virginia Senator Joe Manchin and Arizona Senator Krysten Sinema are still in love with fossil fuels. So, are they and other so-called moderates opposed to clean energy programs? Investment in green and sustainable public housing? A Civilian Climate Corps modeled on the New Deal’s Civilian Conservation Corps? New fees on polluters?
Or are the opponents of the $3.5 trillion bill just opposed to increases in the corporate tax rate or the top income tax rate?
What’s ridiculous about all this is neither Republicans nor the so-called moderate Democrats would dare specify which programs they oppose because they are all popular. So they just wave their hands and say it’s too much. Well, I hope all us citizens respond strongly --- Not only is it not too much (in fact it is probably not enough!)--- It’s about bloody time Congress got serious in addressing inequality and climate change!
[Recently there have been articles suggesting that the economic elites of the country – the Chamber of Commerce, etc. – are gearing up to spend as much money as possible to defeat the $3.5 trillion bill. They especially cannot stand – you guessed it – the tax hike: For example, see David Lawder, “U.S. lobby groups write battle plan to beat Biden tax hikes,” Reuters, July 6, 2021, available at https://www.reuters.com/legal/government/us-lobby-groups-write-battle-plan-beat-biden-tax-hikes-2021-07-06/. True to form, Forbes magazine is urging Republicans to renege on their support even for the bi-partisan infrastructure bill. The fight is on with a September 27 deadline looming. I cannot urge more strongly that citizens actually get on the phone and call their members of Congress urging full support for the $3.5 trillion dollar bill. On dealing with climate change, many of the elements in the bill represent a last chance to avoid the abyss of civilization collapse. This is not hyperbole. The top climate scientists now agree we are dangerously close to the point of no return.]
Michael Meeropol is professor emeritus of Economics at Western New England University. He is the author with Howard and Paul Sherman of the recently published second edition of Principles of Macroeconomics: Activist vs. Austerity Policies
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