McConnell Lays Down a Marker on Infrastructure

Plus, deficit hits $1.9 trillion in seven months  [The Fisc](   By Yuval Rosenberg and Michael Rainey Ahead of White House Meetings, McConnell Lays Down a Marker on Infrastructure Just how serious is President Joe Biden about trying to reach in infrastructure deal with Republicans? [Politico]( this morning called that “the D.C. guessing game du jour,” and anyone playing along should get plenty more evidence to dissect and soundbites to interpret this week. Biden was set to meet with Sens. Joe Manchin (D-WV) and Tom Carper (D-DE) on Monday afternoon and evening and then host an Oval Office discussion on infrastructure and spending with the four congressional leaders on Wednesday. Biden is also scheduled the meet with six Senate Republicans on Thursday to discuss the infrastructure plan. As the White House searches for some bipartisan consensus, Biden’s meetings with GOP members will reportedly focus on physical infrastructure such as roads and bridges, as Democrats don’t expect any Republican cooperation on Biden’s proposed safety net spending. “Should negotiations move forward, the remaining priorities within Biden’s roughly $4 trillion spending plans that are not included in a bipartisan compromise — from funding for home health care to expanded childhood education, family tax credits and increased taxes on those earning more than $400,000 — would likely be pushed through a separate budget reconciliation bill with only Democratic support,” Politico [reports](. Democrats will need to have Manchin, in particular, on board with any plan they want to pass through the 50—50 Senate using a maneuver called budget reconciliation, which would allow them to bypass the threat of a Republican filibuster. Manchin has expressed concern about the amount of spending Biden has proposed and has said he prefers a 25% corporate tax rate to the president’s proposed 28% rate. McConnell lays down a marker: Senate Minority Leader Mitch McConnell on Sunday told Kentucky [PBS station KET]( that the “proper price tag” for an infrastructure package would be about $600 billion to $800 billion, far shy of the nearly $2.3 trillion Biden has proposed in his plan. And McConnell again criticized the president’s proposal for including items that Republicans say aren’t related to infrastructure. Republican Sen. Shelley Moore Capito of West Virginia has proposed a $568 billion package, including existing spending plans, but she told NBC News on Friday that the plan “is not our final offer.” The size and scope of the package aren’t the only obstacles, though: Even if the two sides can settle on the contours of a physical infrastructure package, they continue to have fundamental differences on how to pay for it. The White House has proposed corporate tax increases, while Republicans insist they won’t roll back their 2017 tax reform and want user fees to pay for new spending. The White House so far isn’t drawing many public red lines on the package, though. “The president’s red lines are inaction and are anything that would raise taxes on people making less than $400,000 a year,” White House Press Secretary Jen Psaki [said](. Biden appeared to draw another red line last week, saying he was “not willing to deficit spend” to pay for an infrastructure plan. “I’m willing to compromise but I’m not willing to not pay for what we’re talking about,” Biden said last week, adding that the Republican tax cuts “already have us $2 trillion in the hole.” But the White House’s flexibility reportedly may extend to the idea of additional deficit spending anyway. “Lawmakers and other stakeholders who have recently met either with the president or top members of his team say the White House is more focused on getting Biden’s priorities into a legislative package than drawing a hard line on deficit spending,” Politico notes. The bottom line: The meetings this week may go a long way toward determining how much room the two parties have to try to work out a deal as Democrats looks to make bipartisan progress by Memorial Day — and prepare to go it alone if they don’t see that progress being made. Quote of the Day: Biden Says Workers Can’t Turn Down ‘Suitable Job’ and Get Unemployment “We’re going to make it clear that anyone who is collecting unemployment who is offered a suitable job must take the job or lose their unemployment benefits. There are a few Covid-19-related exceptions so that people aren’t forced to choose between their basic safety and a paycheck, but otherwise that’s the law.” – President Biden, in a speech Monday afternoon, emphasizing that “no one should be allowed to game the system.” The president’s comments come after Friday’s monthly employment report fell far short of expectations as the economy added only 266,000 jobs in April. Republicans and business groups have argued that generous enhanced unemployment benefits have created too much incentive for workers to stay home. Administration officials and others have argued that lingering pandemic fears and caregiving responsibilities are more of a factor. For more on the unemployment benefits situation, see [this report]( by Jim Tankersley and Alan Rappeport in The New York Times. Number of the Day: Deficit Hits $1.9 Trillion Over First Seven Months of Year The federal government ran a $225 billion deficit in April, bringing the total deficit for the first seven months of fiscal year 2021 to $1.9 trillion, according to estimates from the [Congressional Budget Office](. The total for October through April is $449 billion, or 23%, more than the deficit for the same period last year, and larger than any full-year deficit prior to 2020, according to [The Hill](. Outlays over the first seven months of the year were 22% higher than the same period a year ago, mostly as the result of pandemic-related emergency programs such as refundable tax credits (commonly known as “stimulus checks”), unemployment compensation and the Paycheck Protection Program of loans to small businesses. Revenues were 16% higher. States Line Up for $350 Billion in Federal Aid The U.S Treasury on Monday began to accept applications from state and local governments for the use of $350 billion in federal aid, money that was made available as part of the $1.9 trillion American Rescue Plan law signed by President Biden in March. According to the [guidelines]( for the program, the Treasury “will distribute funds to eligible state, territorial, metropolitan city, county, and Tribal governments.” States will receive about $195 billion of the funds, while counties will get $65 billion and cities will get $45 billion. Tribal governments, territories and non-entitlement units of local government (cities with fewer than 50,000 people and counties with fewer than 200,000) will divide the remaining $45 billion. Stating that the funds must be used “to meet pandemic response needs and rebuild a strong, more equitable economy,” the guidelines appear to give states considerable leeway in how they use the money. Recipients can spend the money on public health; use it to replace lost revenues; provide “premium pay” to essential workers; invest in infrastructure; and, perhaps most broadly, use it to “address negative economic impacts caused by the public health emergency.” There are some uses that are prohibited. States are forbidden from cutting taxes to offset the inflow of cash; depositing the money in pension funds; using it for debt service payments; socking it away in rainy day funds; or paying legal settlements. Correcting a mistake: “Today is a milestone in our country’s recovery from the pandemic and its adjacent economic crisis,” Treasury Secretary Janet Yellen said in a statement Monday that provides a critical assessment of the federal response to the financial crisis in 2009. “There are no benefits to enduring two historic economic crises in a 13-year span, except for one: We can improve our policymaking,” Yellen said. “During the Great Recession, when cities and states were facing similar revenue shortfalls, the federal government didn’t provide enough aid to close the gap. That was an error. Insufficient relief meant that cities had to slash spending, and that austerity undermined the broader recovery. With today’s announcement, we are charting a very different – and much faster – course back to prosperity.” Tax revenues stronger than expected: State tax revenues held up much better than experts anticipated in the early days of the pandemic. California Gov. Gavin Newsom announced Monday that his state expects to see a $75 billion surplus across two fiscal years, thanks in part to capital gains tax revenues provided by a surging stock market. Last year, the state projected a $54 billion deficit due to the pandemic. But now, with a record surplus, the governor plans to spend $12 billion on payments to families earning less than $75,000 per year. The cash payments have drawn fire from critics. Although the guidelines prohibit using federal money to give tax breaks, the payments in California are acceptable because the state can claim they are driven by economic growth, Politico’s Kevin Yamamura [reports](. But the payments don’t sit right with many Republicans, who opposed using federal money to boost state and local budgets, even before revenues came in stronger than expected. "This is one more reason why borrowing and sending tens of billions to California was a crying shame — and why every Republican in Congress opposed it," Sen. Mitt Romney (R-UH) [tweeted](. Pentagon Money Diverted to the Wall Cannot Be Recovered: Report The Trump administration diverted $9.9 billion from the Department of Defense to wall construction projects along the border with Mexico, but despite President Biden’s cancellation of those projects, very little of that money can be recovered, Roll Call [reports](. Rep. Betty McCollum (D-MN), chair of the House Defense Appropriations Subcommittee, told fellow committee members on Friday that no money would be returned from those projects that received funding in 2019 and 2020. According to Roll Call, most of the money has either been spent or its authorization has expired. At most, there may be $1.8 billion left in an account originally intended to pay for construction projects on military bases, though the status of those funds is uncertain. McCollum said she would soon provide a memo providing details on the status of the accounts. News - [Biden: Workers Can't Turn Down Job and Get Benefits]( – The Hill - [Pfizer-BioNTech Covid Shot Gains U.S. Clearance for Young Teens]( – Bloomberg - [Recovery’s Stumbles Leave Americans Confronting Unfamiliar Inflation Risk]( – Washington Post - [‘It's Not Phony’: Biden Hungry for a Jobs Deal With Republicans]( – Politico - [Treasury Readies First Batch of $350 Billion Aid to States, Localities]( – Roll Call - [US Trashes Unwanted Gear in Afghanistan to Be Sold as Scrap]( – Associated Press - [Powell Dashboard Shows Wider Disparities as Job Growth Slows]( – Bloomberg - [Most of Pentagon Billions Moved to Border Wall Not Recoverable]( – Roll Call - [Lockdown Mentality Still Holding the Economy Back, Banking Official Says]( – Politico - [White House, State Officials Scramble to Get Docs’ Help With Lagging Vaccination Effort]( – Politico - [Covid Response Chief Has No Regrets on Johnson & Johnson Pause]( – Politico - [‘Where Is the Plan?’: Biden Pressed on Global Vaccine Strategy]( – Washington Post - [California Scores Staggering $75B Budget Surplus]( – The Hill Views and Analysis - [Why Democrats Stopped Stressing Over Big Spending]( – David Siders, Politico - [Why Democrats’ Ambitions for Health Care Are Shrinking Rapidly]( – Dylan Scott, Vox - [Republicans Are Still Waging War on Workers]( – Paul Krugman, New York Times - [What Caused the Biggest Jobs Miss on Record?]( – Mohamed A. El-Erian, Bloomberg - [7% Growth Looks a Lot Harder After the Jobs Report]( – Conor Sen, Bloomberg - [Republican and Democratic Leaders Are Far Apart on Infrastructure. Here’s a Commonsense Compromise]( – Gov. Larry Hogan (R-MD), CNBC - [As With the Tea Party, Republicans Leaders Try to Control a Rebel Army]( – Gerald F. Seib, Wall Street Journal - [America’s Failed Experiment in Public Housing]( – Michael Hendrix, Governing - [Slowing Population Growth Raises Questions about America as a Land with Unlimited Horizons]( – Dan Balz, Washington Post - [The Fed Does a Quiet About-Face on Inflation]( – Anthony O’Brien, The Hill - [Waiving Intellectual Property Rights Is Popular Policy. It Won’t Get More Vaccines Into Arms]( – Megan McArdle, Washington Post Copyright © 2020 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website, [thefiscaltimes.com]( or through Facebook. 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