Manchin balks at GOP’s smaller infrastructure plan – and says he can back $4 trillion as long as it’s paid for

Joe Manchin
Sen. Joe Manchin (D-WV).

  • Sen. Manchin rebuked the GOP’s infrastructure plan, saying Senators should “do whatever it takes.”
  • The moderate Democrat added he’s open to spending $4 trillion so long as it’s paid for.
  • The GOP is preparing an up to $800 billion bill, much smaller than Biden’s $2.3 trillion plan, which may be followed by another $2 trillion.
  • See more stories on Insider’s business page.

Sen. Joe Manchin of West Virginia is open to a multitrillion-dollar infrastructure plan. He just wants to see the bill covered.

That could be bad news for Republicans hoping he’ll break with his party on the next massive plan from President Joe Biden’s desk.

Manchin – a moderate Democrat with incredible influence over Senate Democrats’ agenda – rebuked the GOP’s infrastructure plan on Thursday. These comments could reverberate widely.

A group of Senate Republicans is preparing a plan that could range from $600 billion to $800 billion, drastically undercutting President Joe Biden’s $2.3 trillion proposal. Separately, Senate Minority Leader Mitch McConnell is reportedly telling his caucus to praise Manchin in an effort to win his support.

Manchin’s support is critical for Democrats to pass an infrastructure plan of their own. With Democrats only holding 50 seats in the Senate and relying on Vice President Kamala Harris to break a tie, any opposition from Manchin or other moderate Democrats dooms efforts to pass legislation by a simple majority under reconciliation.

The senator from West Virginia told reporters he still sees room for agreement between Democrats and Republicans, but also that he’s willing to go big if the situation warrants such spending.

“I don’t think they’re locked in on any number,” Manchin said. “We’re going to do whatever it takes. If it takes $4 trillion, I’d do $4 trillion, but we have to pay for it.”

The $4 trillion sum evokes the sum Biden is reportedly looking to spend between two infrastructure proposals. The $2.3 trillion plan unveiled in March focuses more on traditional infrastructure and renovations. A follow-up measure – known as the American Families Act – is expected to include funds for universal pre-K, child care, and other social measures.

The infrastructure argument has split Senators along partisan lines as Biden looks to pass legislation that rivals the New Deal. Democrats argue that new benefits like free community college and child care should join traditional infrastructure in a spending package. Republicans balk at this wider definition and are instead pushing for a slimmed-down measure that focuses on rebuilding roads and bridges. In fact, their slimmed-down plan could double the amount spent on this aspect of physical infrastructure.

The two parties need to come to an agreement on the very definition of “infrastructure,” Manchin said. Identifying exactly what elements the bill should cover is paramount to passing legislation in a timely manner, he added.

The GOP’s plan also differs from Biden’s in that it lacks a corporate tax hike. The president proposed lifting the corporate rate to 28% from 21% along with other tax increases to pay for his infrastructure plan. The GOP instead aims to finance their plan with “user fees,” such as taxes on vehicle mileage traveled or possibly pushing for an increase to the gas tax.

GOP senators doubled down on their dismissal of a corporate tax hike, calling such policy a “non-negotiable red line” Thursday afternoon. Still, they appeared far from agreed on the scope of an overall infrastructure package.

The GOP’s stance mirrors that seen in February as both parties readied their respective stimulus packages. Republican Senators pitched a $618 billion measure to the White House that slashed spending on tenets of Biden’s own plan, including stimulus checks and unemployment insurance. Biden ended up approving a $1.9 trillion package that’s since distributed billions of dollars to American households.

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AOC calls SALT deduction a ‘gift to billionaires,’ opposes effort to hold up infrastructure bill

GettyImages 1133079473
Rep. Alexandria Ocasio-Cortez (D-NY).

  • Repealing a cap on the state and local taxes deduction would be “a giveaway to the rich,” Rep. Alexandria Ocasio-Cortez said Thursday.
  • The Trump tax cut of 2017 slashed the SALT deduction to $10,000 from an unlimited amount.
  • Some Democrats want to get rid of the cap, as itemized deductions can be very high in blue states like New York and California.
  • See more stories on Insider’s business page.

Rep. Alexandria Ocasio-Cortez, the democratic socialist known as “AOC,” is breaking with members of her party who want to undo a major part of Trump’s 2017 tax cut, accusing them of favoring an unequivocal “giveaway to the rich.”

That would be the federal cap on the state and local tax (SALT) deduction, which some Democrats in high-income-tax states have been working to roll back for four years now.

House Speaker Nancy Pelosi, for example, calls the cap on the SALT deduction “mean-spirited” and “politically targeted,” arguing that former President Donald Trump’s White House designed this policy to hurt the wealthy in blue states, in particular. Others even want to hold up one of President Joe Biden’s top legislative priorities if they don’t get their way. That would be the $2.3 trillion infrastructure plan Biden unveiled this month, the first of a two-part package, which he would like to fund with tax revenue rather than deficit-finance.

“I don’t think we should be holding the infrastructure package hostage for a 100% repeal of SALT,” Ocasio-Cortez told Huff Post’s Igor Bobic, according to a pool report. “I think we can have a conversation about the policy, but it’s a bit of an extreme position, to be frank.”

The politics of SALT can be a bit confusing. In 2017, Republicans capped the SALT deduction at $10,000, a progressive reform in an otherwise regressive bill.

But this particular giveaway – enabling taxpayers who itemize their returns to lower their bill to the IRS – has an unusually high number of liberal fans who argue that it only penalizes the better-off in parts of the country that have solidly Democratic governments (and their generally higher tax rates).

The argument has flared up again as Congress debates Biden’s $2.3 trillion infrastructure plan – and how to pay for it. So far, the White House has proposed partially rolling back another aspect of the 2017 tax cut, which slashed corporate tax rates from 35% to 21%; he wants to raise it back to 28%.

But some in the president’s party are threatening to oppose any legislation that does not also reduce some of the federal government’s ability to collect taxes from those who claim the now-restricted SALT deduction.

“No SALT, no deal,” Rep. Thomas Suozzi, another New York Democrat, told The Hill.

Ocasio-Cortez, however, argued that it would not be “just” to simply abolish the cap.

“I think it’s just a giveaway to the rich,” she said, “and I think it’s a gift to billionaires.”

Experts more or less agree. In a 2019 piece for Insider, Scott Eastman, federal research manager at the Tax Foundation, wrote that repealing the cap would “almost exclusively benefit wealthy taxpayers, making the tax code less progressive” – and depriving the federal government of money it will need to fund Democrats’ agenda.

Have a news tip? Email this reporter: cdavis@insider.com

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GOP senators oppose corporate tax hike as ‘non-negotiable red line’ as they float taxes on drivers to pay for infrastructure

Shelley Moore Capito
Sen. Shelley Moore Capito (R-WV).

  • Sen. Shelley Moore Capito said Republicans were strongly opposed to corporate tax hike.
  • “I think that’s a non-negotiable red line,” she said, and other top Republicans around her agreed.
  • Republicans are drafting an infrastructure plan that may be mostly financed with taxes on drivers.
  • See more stories on Insider’s business page.

Republican Sen. Shelley Moore Capito of West Virginia said that GOP senators won’t budge from their resistance to hiking corporate taxes, a key element in President Joe Biden’s infrastructure plan.

“I think that’s a non-negotiable red line,” Capito told reporters on Thursday of her party’s opposition to increasing corporate taxation.

Other Republican senators at the news conference said they agreed with Capito. The group also included Sens. John Barrasso of Wyoming, Roger Wicker of Mississippi, Deb Fischer of Nebraska, and John Cornyn of Texas.

Democrats assailed the Republican comments. Sen. Ron Wyden of Oregon, chair of the Senate Finance Committee, called the red line a “completely unreasonable” position.

“Republicans’ insistence that the most profitable companies in the world shouldn’t contribute a single penny to investments in roads, schools and our clean-energy future is simply not acceptable,” Wyden said in a statement.

A faction of Senate Republicans in recent days appeared to be prepping a $600 billion to $800 billion infrastructure counterproposal to Biden’s $2.3 trillion package. Several lawmakers suggested financing the plan with a vehicle mileage tax on electric vehicles or raising the gas tax.

“I think we still haven’t defined what we mean by infrastructure and what’s going to be included and so how much it’s going to be, we don’t really have an idea,” Sen. Mitt Romney of Utah told reporters on Thursday. “It’s a very early process that we’ve engaged in.”

Still, other Democrats described the $800 billion indicated by Capito as too meager to address the country’s infrastructure needs. “We’re going to do whatever it takes. If it takes $4 trillion, I’d do $4 trillion but we have to pay for it,” Sen. Joe Manchin of West Virginia told reporters on Thursday.

A JPMorgan economic research note on Thursday found that, although the corporate tax rate was higher than the global average before former President Donald Trump’s 2017 tax cut, the US had a lower ratio of corporate tax revenues to GDP dating back to 2000.

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White-owned small businesses are twice as likely to get financing as Black- and Latino-owned firms, Fed survey finds

black owned business sign
  • A Fed survey found white-owned small businesses were twice as likely to get non-emergency financing as Black-owned ones.
  • It also found that 46% of Black-owned firms that applied for financing didn’t get anything.
  • Black-owned businesses also experienced delays in receiving Paycheck Protection Program loans.
  • See more stories on Insider’s business page.

Small businesses have been hit hard financially by COVID-19, and government aid from President Joe Biden’s $1.9 trillion stimulus package, along with regular, non-emergency financing from banks, has helped those businesses stay afloat.

But access to funding – or lack thereof – still often breaks down along racial lines, according to a new survey conducted by 12 Federal Reserve Banks.

The survey, conducted in September and October 2020, yielded 9,693 responses from a small businesses with between one to 499 employees, and another 4,531 responses from non-employer firms, with responses corresponding to the prior 12 months. It found that aid from banks, along with Paycheck Protection Program (PPP) funding, has disproportionately gone to white-owned businesses, and firms owned by people of color have in many cases gone without the help they need.

According to the credit survey released on Thursday, white-owned small businesses were twice as likely to be fully approved for financing as Black- and Latino-owned businesses last year. Among Latino-owned firms with low-credit risk, 25% received requested non-emergency financing, while 48% of white-owned firms received all requested financing. The survey also found that Black- and Latino-owned business with low credit risk were approved for full financing at nearly the same rate as white-owned businesses with medium to high credit risk.

Here are the other key findings of the survey:

  • Businesses owned by people of color were more likely than white-owned businesses to report reduced operations or temporary closure during the pandemic;
  • 13% of Black-owned firms received all the financing they sought during the pandemic, compared to the 40% of white-owned firms;
  • 46% of Black-owned firms that applied for financing received nothing;
  • And among non-employer firms, those with white owners were twice as likely as those with Black owners to receive all the PPP funding they sought.

Insider reported on March 16 that the PPP has factored into small businesses maintaining strong credit standings due to aid provided since the start of the pandemic, but experts said the government needs to provide more targeted aid beyond the pandemic to ensure equitable distribution.

“Let’s find those businesses that really need the help,” Brett Theodos, a senior fellow at the Urban Institute, told Insider last month. “Let’s support entrepreneurial ecosystems where they’re not well developed, let’s help de-risk loans that really are high risk, let’s overcome the race equity gap that exists and business ownership in this country, and let’s be more intentional around our targeting.”

On March 30, Biden signed the PPP extension into law, which allows small businesses to receive aid from the program through May 31, and he also included $50 billion in small business aid in his $1.9 trillion stimulus package.

But since the program was established under the CARES Act in March, it has run into a host of problems that prohibited eligible businesses from receiving aid. For example, although loans within the program are intended for businesses with 500 or fewer employees, some large companies got them, such as fast-food chain Shake Shack getting $10 million, which it later returned.

And Brookings data from last year found that businesses in communities of color were least likely to have existing relationships with large banks, causing an average 31-day delay for small businesses in majority-Black zip codes to receive their PPP loans.

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JPMorgan says it’s time for US corporate taxes to catch back up with the rest of the world

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Trump Biden
Presidents Joe Biden (L) and Donald Trump (R).

  • JPMorgan said the US should increase corporate tax rates to catch up to other world economies.
  • The US is more focused than other countries on raising tax revenue from personal income and housing.
  • Even before the 2017 Trump tax cut, it found US corporate tax revenues lower than the global average.
  • See more stories on Insider’s business page.

President Joe Biden kicked off a major debate in early April when he proposed raising the corporate tax rate from 21% to 28% to fund his $4 trillion infrastructure plan. Now JPMorgan has weighed in on the matter and it finds corporate tax revenue is lower in the US than elsewhere, even if the rate is now close to the international average.

And as sentiment appears strong in the US that American corporations don’t “pay their fair share,” the bank found that relative to other economies, the US “prioritizes raising tax revenue from personal income and property.” In other words, the current American tax system raises more from people’s paychecks and real-estate investments than from companies, compared to the rest of the world.

JPMorgan’s economic research note on Thursday found that prior to President Donald Trump’s 2017 tax cuts, the US statutory corporate tax rate of 35% was high compared to other countries, but that law slashed them by 13.2% – the largest decline ever.

Furthermore, the bank found that dating back to 2000, revenues actually collected from American corporate taxes only represented about 2% of gross domestic product (GDP), versus a 3% average globally. This reflects, the bank said, “a complex system of exemptions and deductions embedded in the US tax code that reduces the corporate tax base and results in corporate taxes contributing a much lower share of total tax revenue in the US than elsewhere.”

And after the Trump tax cut, this percentage fell to just 1% of GDP. This explains the American reliance on taxing personal income and housing, the note said.

“The US stands out as having both the highest share of revenue from personal income (both labor and investment) across the economies we examine, and the smallest share of tax revenue from taxes on goods and services,” the note said.

While Biden and Democrats have supported raising the corporate tax rate to fund infrastructure, Republican lawmakers oppose doing so. For example, Sen. Roger Wicker of Mississippi, the ranking Republican on the Senate Commerce Committee, said that rolling back Trump’s 2017 tax cuts would be “an almost impossible sell” to get bipartisan support.

And Insider reported on Thursday that a group of Republican senators are drafting their own infrastructure plan – one that would cost between $600 billion and $800 billion, and would be funded without any corporate tax hikes.

“My own view is that the pay-for ought to come from people who are using it. So if its an airport, the people who are flying,” Sen. Mitt Romney of Utah, who is helping draft the plan, told reporters. “If it’s a port, the people who are shipping into the port; if it’s a rail system, the people who are using the rails; If it’s highways, it ought to be gas if it’s a gasoline powered vehicle.”

But Biden has remained firm on increasing the corporate tax rate to 28%, saying in a speech last week that the tax hike would level the playing field for large companies and average Americans.

He said: “I’m not trying to punish anybody, but damn it, maybe it’s because I come from a middle-class neighborhood, I’m sick and tired of ordinary people being fleeced.”

JPMorgan doesn’t put it in quite those terms, but its note concludes that so-called ordinary people account for a greater share of tax revenue in the US than elsewhere.

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American voters overwhelmingly like the stuff the GOP wants to strip out of Biden’s infrastructure plan

Joe Biden
President Joe Biden.

  • A CNBC poll found that just 36% of voters support Biden’s infrastructure plan as is.
  • But most supported funding for nontraditional infrastructure measures, like caregiving and climate.
  • The GOP argues that anything unrelated to physical infrastructure doesn’t belong, but voters seem to disagree.
  • See more stories on Insider’s business page.

President Joe Biden unveiled his $2.3 trillion infrastructure package two weeks ago, and a CNBC survey found overwhelming support for it, but only parts of it. That’s where it gets interesting.

According to a CNBC survey released on Thursday, just 36% of Americans supported Biden’s infrastructure plan as he presented it – only three percentage points higher than those who oppose the plan, at 33%. This is about half the level of support that Biden’s $1.9 trillion stimulus plan received in similar polling in March.

Since Biden unveiled the plan, Republican lawmakers have attacked his definition of infrastructure, saying that a new bill should focus on physical infrastructure, like roads and brides, and should exclude measures related to the care economy like universal pre-K, as well as things like climate change initiatives. Senate Republicans are drafting a bill focused on roads and bridges, Insider’s Joseph Zeballos-Roig reported.

The CNBC poll illustrates the catch for Republicans: the nontraditional aspects of Biden’s plan are very popular. This could prove pivotal for its future, as the White House has stressed that its definition of bipartisanship doesn’t focus just on what Republican politicians favor, but on what Republican voters favor as well.

The poll noted that a “31% slice of the public say they don’t know enough to venture an opinion, suggesting an opportunity for each political party to make headway.”

Despite the majority of respondents opposing the president’s plan, an overwhelming majority supported specific funding proposals within the plan.

Of the following four main findings, three are measures the GOP has argued for excluding from the bill:

  • 87% of the public backed fixing roads and bridges;
  • 82% of the public supported increasing pay for elderly caregivers;
  • 78% of the public supported expanding high-speed broadband;
  • And 70% of the public supported fixing the electrical grid and making buildings and homes more energy efficient.

The poll also found that 50% of respondents supported raising the corporate tax rate from 21% to 28% to pay for the plan. When asked about corporate tax hikes generally, 46% said it was a bad idea because it would raise wages and cost jobs, while 43% said corporate tax hikes should be raised to pay for infrastructure because companies “do not pay their fair share.”

Senate Minority Leader Mitch McConnell said in a statement that while Biden could have drafted a “serious, targeted infrastructure plan” that would have received bipartisan support, “the latest liberal wish-list the White House has decided to label ‘infrastructure’ is a major missed opportunity by this Administration.”

And South Dakota’s Republican governor, Kristi Noem, said during a Fox News interview in early April that she was “shocked” and at how little of Biden’s plan relates to infrastructure, although her comments indicated that she is unclear on what constitutes physical infrastructure.

“It goes into research and development, it goes into housing and pipes and different initiatives, green energy, and it’s not really an honest conversation that we’re having about what this proposal is,” Noem said.

John Bolten, chief executive officer of Business Roundtable, which represents CEOs of the largest US companies, said in an interview with Bloomberg TV that the organization wants Biden to limit the scope of the package to mainly address roads and bridges and “leave the rest of the stuff for something else.”

He added, though, that “more modern infrastructure” also needs investment, citing broadband as an example.

Biden’s Chair of the Council of Economic Advisors Cecilia Rouse said on April 3 that America needs an upgraded definition of infrastructure to meet “the needs of a 21st-century economy.”

A New York Times poll released on Thursday found that 64% of voters approve of Biden’s infrastructure plan, 84% of voters support rebuilding roads and bridges, and 78% support expanded broadband.

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Senate Republicans are drafting their own infrastructure plan and want to tax people for it, not corporations

Mitt Romney
Sen. Mitt Romney (R-UT).

  • Republicans are starting to draft an infrastructure plan in a bid to strike a deal with Biden.
  • It may shift the financial burden of the plan onto people instead of large corporations.
  • The plan could come in at less than half of the $2.3 trillion proposal laid out by the White House.
  • See more stories on Insider’s business page.

A group of Senate Republicans is assembling an infrastructure plan, part of a bid to strike a deal with President Joe Biden on a package that’s more narrowly targeted in scope.

The Republican faction appears to consist of the same 10 GOP senators who pitched Biden a $618 billion stimulus package in early February. Those negotiations didn’t yield a breakthrough, as the Democrats passed a $1.9 trillion stimulus without any Republican votes.

These infrastructure proposals are shaping up to be similar, as the Republican group is preparing to unveil an infrastructure bill likely worth $600 billion to $800 billion, much smaller than Biden’s $2.3 trillion plan.

The bloc includes Sens. Mitt Romney of Utah, Bill Cassidy of Louisiana, and Shelley Moore Capito of West Virginia.

Here are some emerging outlines of the plan, based on comments from those Republican lawmakers:

  • $600 billion to $800 billion price tag.
  • Focused on roads, bridges, highways, airports, water and broadband.
  • May double the spending on roads and bridges from Biden plan ($115 billion).
  • Financed with “user-fees” such as a tax on vehicle-miles traveled.
  • No corporate tax hikes.

Romney said told reporters the plan remained in its “early stages,” an indication many details still need to be hashed out. Yet the developments could lead to weeks of negotiations between the Republican-led group and the White House on a smaller infrastructure plan.

Capito on Wednesday said “a sweet spot” for an bipartisan infrastructure deal would range between $600 billion to $800 billion – less than half of the $2.3 trillion package Biden laid out.

“What I’d like to do is get back to what I consider the regular definition of infrastructure in terms of job creation. So that’s roads, bridges, ports, airports, including broadband into that, water infrastructure,” she told CNBC.

‘The people who are using it’ should pay for infrastructure

Other Republicans say they would back shifting the cost of the package from large companies onto the “users” who benefit from government spending. Many are strongly opposed to reversing the Trump tax law to pay for an infrastructure overhaul.

“My own view is that the pay-for ought to come from people who are using it. So if its an airport, the people who are flying,” Romney told reporters. “If it’s a port, the people who are shipping into the port; if it’s a rail system, the people who are using the rails; If it’s highways, it ought to be gas if it’s a gasoline powered vehicle.”

Romney also said he supports implementing a mileage fee on drivers of electric vehicles. Then Capito suggested redirecting unused stimulus money to pay for an infrastructure plan among other measures.

“We’re going to look at Vehicle Miles Traveled as a possibility when you look at fleets or when you look at electric vehicles. We’re going to look at assessing electric vehicles for road usage even though they don’t pay into the gas tax,” she said.

Meanwhile, Cassidy is pushing for an even bigger federal commitment to repair roads and bridges.

“Something I would like to see is double the money for roads and bridges,” he said Wednesday, adding he was in talks on a plan alongside Gov. Larry Hogan of Maryland, the head of the National Governors Association.

News of the Republican plan triggered some early criticism from Sen. Bernie Sanders, who heads the Senate Budget Committee.

“We have a major crisis in terms of roads, bridges, water systems, affordable housing, you name it. [The GOP price tag] is nowhere near what we need,” he told reporters on Wednesday.

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GOP Senator says a ‘sweet spot’ on bipartisan infrastructure deal is less than half of what Biden wants

Shelley Moore Capito
Sens. Shelley Moore Capito, R-W.Va

  • Sen. Shelly Moore Capito said a “sweet spot” for a bipartisan infrastructure deal is less than half of what Biden wants.
  • “I would say probably into the $600 or $800 billion, but we haven’t put all of that together yet,” Capito told CNBC.
  • Other Republicans like Mitt Romney and Bill Cassidy are signaling there’s an infrastructure plan being drafted.
  • See more stories on Insider’s business page.

Republican Sen. Shelley Moore Capito of West Virginia said a middle ground between Democrats and Republicans on an infrastructure deal would be significantly less than half of the $2.3 trillion package that President Joe Biden seeks.

“I think the best way for us to do this is hit the sweet spot of where we agree and I think we can agree on a lot of the measures moving forward. How much? I would say probably into the $600 or $800 billion, but we haven’t put all of that together yet,” Capito told CNBC.

Capito laid out some potential revenue elements, including unused coronavirus relief funds, road usage fees for electric cars, and a vehicle miles-traveled tax. She also suggested raising the gas tax, a measure the Biden administration has already ruled out.

“It’s going to have to come from a lot of different sources, but this is important,” she said. Capito did not bring up lifting corporate taxes.

The West Virginia Republican later told Capitol Hill reporters there was a group were drafting a counterproposal, suggesting it would be sized somewhere between $600 billion to $800 billion. Capito was part of the Republican group that pitched a $618 billion counterproposal, which Biden along with Democrats ultimately rejected.

Other Republicans are signaling they are putting together a new package. Sen. Mitt Romney of Utah told reporters on Capitol Hill Wednesday there is a bipartisan group of 20 lawmakers evenly divided between Republicans and Democrats drafting one.

Then Sen. Bill Cassidy of Louisiana said on Tuesday that a bipartisan group was assembling an “alternative” to the Biden plan. He indicated it would double the amount of spending on roads and bridges from the $115 billion that the president is seeking.

The Biden infrastructure plan includes major funding to fix roads and bridges and set up clean energy incentives. It also has federal funds for in-home elder care, public transit, and schools, among other areas.

Democrats are pressing to take advantage of the cheap cost of borrowing to fund new investments they say will curb inequality and grow the economy.

Republicans, however, are opposed to the Biden package, viewing it as a colossal liberal wish-list. Capito criticized the Biden proposal’s expansive scope, arguing it should be constrained to roads, bridges, airports, broadband, and water infrastructure.

“If we’re going to do this together, which we want to do and is our desire, we’ve got to find those areas and take away the extra infrastructure areas that the president put into his bill like home health aides and school building and all of these kinds of things,” she told CNBC.

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The Biden administration reportedly spent months preparing for an inflation spike that hasn’t come yet – and it’s still worried

President Joe Biden and Janet Yellen White House.JPG
President Joe Biden meets with Treasury Secretary Janet Yellen in the Oval Office at the White House in Washington, U.S., January 29, 2021.

  • White House and Treasury officials spent months testing inflation scenarios, the NYT reports.
  • No scenario showed inflation rising so quickly that the Fed would lose control of price growth.
  • The findings open the door for Biden to spend trillions more on infrastructure and social care.
  • See more stories on Insider’s business page.

The Biden administration spent much of its first days in office testing how further stimulus might drive inflation higher. No modeled scenario saw price growth surge out of control, The New York Times reported on Wednesday.

Still, the report said repeatedly that White House and Treasury officials are “worried” about the issue.

The inflation debate has loomed large over the White House since before President Joe Biden was even inaugurated. The president unveiled a $1.9 trillion relief proposal in January, pitching the plan as an additional boost for the US economic recovery. Largely Democrat-affiliated economists have fiercely debated the inflation risks of such large deficit-financed spending, led by former Obama- and Clinton-administration official Larry Summers.

Democrats largely backed the measure, saying the risks of retracting government support were greater than the risks of spending too much. But Republicans – and even some moderate Democrats – balked at the hefty price tag and cited fears that another set of stimulus checks could spark a dangerous surge in inflation.

“This is the least responsible fiscal macroeconomic policy we’ve had for the last 40 years,” Summers said in a March interview with Bloomberg TV, adding the measures are a product of “intransigence” among Democrats and “irresponsible behavior” among Republicans.

Democrats went ahead without any Republican votes, passing the bill via reconciliation, and Biden signed it into law on March 11. Still, the stimulus push wasn’t without some trepidation. A handful of officials in the Treasury Department spent several months modeling how Americans would deploy new fiscal support, and whether any outcome could lead to stifling inflation, according to The Times. Treasury Secretary and former Federal Reserve Chair Janet Yellen even helped create the models.

Their observations were encouraging and lend new support to Biden’s latest spending proposal. The team tested a range of potentialities for how quickly Americans would spend stimulus, where they would deploy cash, and how the labor market’s recovery would affect inflation. Yet no outcome saw inflation charge out of the Fed’s control and risk a new recession, the Times reported.

The findings have been hinted at in statements from the White House and the Treasury in recent weeks. Long-term scarring in the labor market poses a greater risk than inflation, Yellen told ABC’s “This Week” in March. Economic reopening is expected to drive a jump in prices, but the effects will likely be temporary and fail to drive sustained inflation, she added.

The administration’s Council of Economic Advisors mirrored Yellen in a Monday blog post. A temporary rise in inflation is consistent with trends seen after other major events like wars or past labor-market rebounds, economists Ernie Tedeschi and Jared Bernstein said. The White House will continue to monitor consumer prices, but it expects inflation to fade as actual price growth “runs more in line with longer-run expectations,” they added.

Fed Chair Jerome Powell has repeatedly backed up such an outlook. The central bank chief said last month that the Fed will “be patient” in monitoring inflation and eventually lifting interest rates. The most likely scenario during the recovery is that prices move higher but fail to stay elevated as the country enters a new sense of normalcy, Powell said in early March.

Although the Fed operates independently from the executive branch and doesn’t play a role in fiscal spending, officials testing inflation scenarios told the Times that the Biden administration trusts the Fed to intervene and stave off price growth should it accelerate faster than expected.

The latest data signals the country is far from any sort of inflation scare. The Consumer Price Index – a popular gauge of overall inflation – rose 0.6% in March as stimulus, reopening, and vaccination fueled stronger economic activity. Economists expected a 0.5% gain.

Consumer prices rose 2.6% year-over-year, also exceeding estimates. The measure is skewed somewhat by year-ago data, since prices initially dropped when the pandemic first slammed the US economy. Those readings present a lower bar for year-over-year inflation. Though the data points to stronger inflation, price growth still has a ways to go before it trends at the Fed’s above-2% level and warrants serious concern.

That opening paves the way for additional spending. Biden unveiled a $2.3 trillion infrastructure proposal late last month that includes funds for nationwide broadband, improved roads and bridges, and affordable housing. The package is expected to be spent over eight years, compared to the weeks-long rollout seen with much of Biden’s stimulus plan. Such long-term deployment would present little inflationary risk, and Biden has portrayed the plan as an investment in American industry, jobs, and research as opposed to an emergency relief measure.

The March uptick in inflation, however, does signal that price growth is trending higher. Future CPI readings are set to be closely watched releases as the administration balances its spending goals with a red-hot economy. Economists and officials are anticipating stronger inflation. How price growth trends from there will determine whether the Biden administration was successful or created new risks.

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Senate Republicans to discuss repealing ban on earmarks, key tactic for passing difficult legislation

Mitt Romney
Sen. Mitt Romney (R-UT).

  • The Senate GOP will meet next week to decide on bringing earmarks, funding members can use for their districts, back.
  • This follows House Republicans approving the restoration of earmarks in March.
  • Some GOP Senators opposed bringing earmarks back because of past abuses with the funding measure.
  • See more stories on Insider’s business page.

Almost a month after House Republicans voted to approve the restoration of earmarks, Senate Republicans are expected to meet next week to discuss bringing back the so-called community funding measures.

A decade ago, Republicans banned earmarks, which allow members to put funding for their districts in a larger bill, following a series of scandals related to earmark abuses. But now, both House Democrats and House Republicans have voted to bring them back, and Senate Republicans are set to meet next Wednesday to ratify their rules and discuss earmark usage, according to Bloomberg.

As some moderate Democrats, notably Sen. Joe Manchin of West Virginia, stress the importance of bipartisan legislation, earmarks could be an important tactic for easing difficult legislation through congress on bipartisan lines.

Republican Sen. Richard Shelby of Alabama told The Hill on Tuesday that Democrats are already going forward with restoring earmarks, so he thinks “the decision is headed toward letting every member decide if they want to participate in the earmark process.”

On March 2, House Democrats introduced new guidelines for earmarks to bring them back while increasing transparency and requiring members to verify they have no financial interest in the funding requests, among other things.

On March 17, House Republicans voted by secret ballot to bring earmarks back as well. House Minority Leader Kevin McCarthy said after the vote that there was “real concern” about solely the Biden administration directing where money goes.

“This doesn’t add one more dollar,” McCarthy said. “I think members here know what’s most important about what’s going on in their district, not Biden.”

However, some Senate Republicans did not feel the same. Sen. Mitt Romney of Utah told reporters after the vote that earmarks “are not the right way to go.”

“They have been associated with excess, and it would represent a turn to the worst,” he said.

The ban on earmarks once had bipartisan support, as a series of scandals led to former President Barack Obama saying in 2011 that he would veto any bill containing earmarks.

A defining earmark scandal occurred in 2005, when Alaska Rep. Don Young secured $233 million for a bridge that would connect two small cities, which became known as the “bridge to nowhere,” as critics said the bridge would not significantly benefit Young’s community. The same year, former California Rep. Duke Cunningham landed himself eight years in prison for accepting $2.4 million in bribes in return for promising earmarks to defense contractors.

As recently as March 1, a group of 10 Republican senators, led by Sens. Marco Rubio of Florida and Steve Daines of Montana, introduced a bill to permanently ban earmarks. Rubio said in a statement that earmarks had led to “corruption and waste, and bought votes in Congress for unpopular legislation.”

Although Republican lawmakers have largely opposed President Joe Biden’s infrastructure plan thus far, bringing earmarks back could help pass difficult legislation as it allows lawmakers to include funding for their specific districts in bills.

The House is already using earmarks again, and the Transportation and Infrastructure Committee is accepting member requests for community funding through April 23 .

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