Inflation Worries Endanger Biden’s Build Back Better Agenda
Rising inflation in the U.S. may be putting the brakes on Democrats’ effort to push President Joe Biden’s signature package of climate and social spending measures through Congress before the end of the year, even though it’s not clear that the measures would add to rising prices.
House Democrats are pushing for a vote on the package, known as the Build Back Better Act, in an effort to move it forward in advance of the Thanksgiving recess next week. Democratic leaders had hoped to secure a vote on the bill last week, but more moderate Democrats demanded a delay until the Congressional Budget Office (CBO) could complete its analysis of the bill’s expected effects on the federal budget.
On Monday, the CBO said that its analysis would be completed by Friday of this week, clearing the way for a vote, so long as the agency finds that the bill fully offsets its spending with increased revenues, as Democrats have promised.
Biden expressed hope Monday during a signing ceremony for a $1.2 trillion bipartisan infrastructure package that the bill would pass.
“I’m confident that the House will pass this bill, and then we’re going to have to pass it in the Senate,” he said in remarks delivered on the White House lawn. “It is fully paid for, it will reduce the deficit over the long term, according to leading economists … and again, no one earning less than $400,000 will pay a single penny more in federal taxes. Together, with the infrastructure bill, millions of lives will change for the better.”
However, the bill may be facing trouble in the Senate, where West Virginia Senator Joe Manchin and Arizona Senator Kyrsten Sinema, both moderate Democrats, have expressed reservations about the $1.75 trillion package because they fear it might exacerbate price increases.
If either of them were to vote against it, the package would fail, because the Democrats control only 50 of the 100 votes in the Senate and have to count on Vice President Kamala Harris to cast the deciding vote in the case of a tie.
Last week, after the Labor Department announced that inflation for the fiscal year ending in October had reached a 30-year high of 6.2%, Manchin tweeted out a message that many in Washington read as a warning to his fellow Democrats.
“By all accounts, the threat posed by record inflation to the American people is not ‘transitory’ and is instead getting worse,” he wrote. “From the grocery store to the gas pump, Americans know the inflation tax is real and DC can no longer ignore the economic pain Americans feel every day.”
However, it is far from clear that the Build Back Better agenda would be inflationary, despite Manchin’s and Sinema’s concerns or the assertions of Republicans in Congress.
The bill would dedicate $555 billion to addressing climate change – money that would be spread out over a decade. It would also provide universal pre-K child care, paid family and medical leave, financial benefits to families with young children, and more. It would be paid for, among other things, by a 15% minimum tax on business profits.
“Republicans are saying it’s highly inflationary in and of itself, and I don’t buy that,” Joseph E. Gagnon, a senior fellow at the Peterson Institute for International Economics, told VOA. “It’s not that big, when you think about how it’s spread out, and there are some tax increases that go along with it.”
The White House has been touting a letter from 17 Nobel Prize-winning economists that said that the inflationary effects of the bill would be “negligible” over the medium term. However, the letter omitted the potential for near-term inflationary effects and was based on an early version of the bill in which tax increases figured much more prominently than they do in the current, smaller version.
To some, the picture is less clear.
“There are elements in the bill that I think should tend to relieve inflationary pressures, and there are elements in the bill that I think should tend to worsen inflationary pressures,” Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget, told VOA. “Analytically, I think it’s ambiguous, which is more powerful.”
Goldwein said that he thinks the inflationary pressures might be marginally stronger but said, “I don’t think the bill is going to have a substantial effect either way. There’s a risk, because we are in a very high-inflation environment, and sometimes that last log you put in the fire is the one that causes it to spread. … But when you look at it as a whole, I don’t think it’s going to tend to push inflation up or down very much.”
Biden has actually gone so far as to hint that the bill would help to improve the current high inflation being experienced by Americans.
Last week, for example, the president tweeted, “Congress has a tool at its disposal to lower costs for families right away: The Build Back Better Act. All we’ve got to do is pass it.”
However, this is a bit of a two-step by the president. To the extent that the Build Back Better Act might reduce costs for American consumers, it would be doing so by having the government absorb some of the cost of things like child care and prescription drugs, not by reducing inflation in the near term.
According to Gagnon of the Peterson Institute, “I don’t see that it would have an effect on near-term inflation.”