Dems Restore Paid Leave — and a Big Tax Break for the Rich

Plus, the Fed eases up on the gas ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ [The Fisc](   By Yuval Rosenberg and Michael Rainey After Election Drubbing, Democrats Say It’s Time to Deliver The reckoning has begun. After suffering an Election Day drubbing on Tuesday — most notably with a loss in the bellwether Virginia gubernatorial race and a closer-than-expected gubernatorial contest in New Jersey — Democrats on Wednesday continued their push to pass their sweeping economic plan even as some key party members debated the message sent by voters. Did Democrats lose support because of lawmakers’ failure to pass two major pieces of President Joe Biden’s agenda? Or were the results about sagging presidential approval ratings and economic concerns? Were they more a reflection of local issues, like education in the Virginia race, and weak individual campaigns? Or were they little more than a continuation of [historical voting patterns]( As Democrats look to change their electoral fortunes in 2022, the various interpretations of what Tuesday’s results mean for the party’s agenda largely corresponded to pre-existing lines of thinking. Some centrists argued that progressives had hurt the party by delaying passage of the $1 trillion bipartisan infrastructure bill. “What I heard when I was out campaigning for the ticket was, ‘Hey, you guys got the White House, the Senate, the House. When are you going to get more things done?’” Sen. Mark Warner (D-VA) said, according to [The New York Times](. “I mean only in Washington could people think that it is a smart strategy to take a once-in-a-generation investment in infrastructure and prevent your president from signing that bill into law. And that’s somehow a good strategy?” Sen. Joe Manchin (D-WV), who has objected to numerous elements of the Democratic social safety net and climate change package that progressives have wanted finalized before voting for the infrastructure bill, said the Virginia race signaled voter fears about Democratic plans to add trillions in new spending. “They were concerned about inflation, high costs, making it more difficult for them,” he said, according to The Washington Post. “And I think they spoke loud and clear at the voting [booth], so I hope everybody listens.” Manchin appeared to once again be an outlier, though. Most in the party agreed that Tuesday’s results reinforced the need to stop the intraparty backbiting and resolve the lingering differences that have stalled action on both major pieces of legislation so that they could demonstrate — quickly — that they can govern. “I think it’s going to send a signal that we’ve got to produce. You know, the American public gave us a majority of both houses for a reason,” said Sen. Tim Kaine (D-VA). “We’ve got to get results for people, and if we do, we’ve got a good chance to get a whole lot of votes. But if we, you know, argue amongst ourselves, and we don’t produce, that puts us at risk.” Rep. Tom Malinowski (D-NJ) echoed that takeaway: “The No. 1 concern voters have raised with me over the last several weeks has been inability of Congress and government in general to get things done at a time of great need for the country,” he told the Times. “So the best thing we can do in Congress is to pass these damned bills, immediately.” Democrats Restore Paid Leave to Their Social Spending Plan With that fresh urgency, congressional Democrats pushed Wednesday toward finalizing their Build Back Better plan, issuing a [new, 2,135-page version]( of the legislation. Party leaders aim to immediately holding a procedural hearing on the package, potentially setting up a House vote by the end of the week. Yet even as they raced toward a vote, disputes over the substance of the bill continued. “Democrats continued to spar over a plan to address immigration, for example, disappointing some left-leaning lawmakers who want to see the party take aggressive action to overhaul the system,” The Washington Post [reports](. “And they appeared especially at odds over an eleventh-hour effort to restore a plan to provide paid family and medical leave benefits for millions of Americans.” The latest version of the package restores a plan to provide four weeks of paid family and medical leave. The measure would start in 2024 and be permanent, with a 10-year cost reported to be around $200 billion. It’s a popular provision that many Democrats have pushed for but Manchin [continues to oppose]( at least as part of the reconciliation package. “I want to support paid leave. I want to do it in a bipartisan way. I've talked to Susan Collins [the Republican senator from Maine]. I've talked to colleagues on both sides. We both agree something can be done,” Manchin said. In a letter to colleagues Wednesday, House Speaker Nancy Pelosi (D-CA) indicated that a single unnamed senator still opposes “a few of the priorities contained in our bill,” leaving negotiators still trying “to find common ground” on a final package. “And because Pelosi has vowed not to force House lawmakers to vote on anything that can't win 50 votes in the Senate, she's waiting for negotiators to iron out those remaining differences before the full House will consider the bill,” The Hill [reports](. Pelosi’s push for a quick vote could also be delayed by a group of centrist House Democrats who insist that they won’t support the package until its costs have been officially scored by the Congressional Budget Office, a demand that could forestall action for up to two weeks. Pelosi said in her letter Wednesday that Democrats have been informing the CBO and the Senate of changes to the legislation to help speed that CBO estimate and rulings from the Senate parliamentarian on whether elements of the legislation meet the [special requirements]( to be included in a budget reconciliation bill, the process Democrats are using to avoid the threat of a Republican filibuster. The immigration provisions in the Democratic bill may not get the parliamentarian’s approval, posing another challenge for the package as a whole since a group of Hispanic Caucus members reportedly has vowed to oppose any bill that excludes those reforms. The bottom line: Pelosi may essentially be daring Manchin to block the paid leave proposal, or the package as a whole. For now, though, it looks like the House is preparing to vote on its own version of the bill, potentially leaving the Senate to amend it to reflect late-stage negotiations and send it back to the House again. The process likely will take time, meaning that passage by Thanksgiving may still be the base case. State-and-Local Tax Deduction Also Back in Dem Bill Blue state Democrats have been pushing hard to include a repeal of the $10,000 cap on the state and local tax (SALT) deduction to the Build Back Better bill, and it looks they’ve won that battle, at least for now. The latest version of the House bill would raise the value of the deduction to $72,500 per year, starting this year and lasting until 2031. Critics on both the left and the right have emphasized the regressive nature of the SALT cap repeal. According to the Committee for a Responsible Federal Budget, the new proposal would cost $300 billion through 2025, and about $240 billion of that lost revenue would be claimed by households earning more than $200,000 per year. The SALT cap repeal would also be one of the most expensive items in the Democratic bill. “Though this increase in the SALT deduction cap would be less costly than full repeal, it would still cost more than almost any other part of Build Back Better with just the child care subsidies and the combined costs of all clean energy tax credits costing more,” CRFB [said]( Wednesday. This chart shows the projected cost of the latest version of the repeal, along with other elements in the bill, including an earlier proposal that would have eliminated the SALT deduction cap entirely for five years. The Fed Eases Up on the Gas The Federal Reserve will start reducing its temporary bond-purchasing program this month, with the goal of wrapping up the stimulative effort by the middle of next year, the central bank announced Wednesday. To support the ongoing recovery, the bank has been purchasing $120 billion of Treasury and mortgage-backed securities per month, part of an effort to maintain liquidity in the financial markets. Starting in November, the bank will reduce its monthly purchases of Treasury securities by $10 billion and its purchases of mortgage-backed securities by $5 billion. The $15 billion reduction will continue each month until the program is closed down in June, though the schedule is open to revision if economic conditions change. The announcement marks the first major step the Fed is taking to withdraw its support from an economy still bearing the scars of the Covid-19 recession. In a [statement]( the Fed indicated that the members of the Federal Open Market Committee were pleased with the course of the economic recovery so far, though they would continue to monitor the data closely. “With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen,” the Fed said. Keeping an eye on inflation: Fed Chairman Jerome Powell said he continues to view recovery-driven price increases as temporary, though he expressed greater uncertainty than he has in the past about how long the inflationary dynamic will last. Noting that there have been “sizable price increases in some sectors,” Powell said that “overall inflation is running well above our 2 percent longer-run goal” and “supply constraints have been larger and longer lasting than anticipated.” Nevertheless, the Fed chair still expects those constraints to ease as the economy adjusts, with the result that “inflation will decline to levels much closer to our 2 percent longer-run goal.” Powell provided a bit more detail on why he thinks inflation is temporary, citing factors that are expected to end as the economy strengthens: “[I]t remains the case that the drivers of higher inflation have been predominantly connected to the dislocations caused by the pandemic, specifically the effects on supply and demand from the shutdown, the uneven reopening, and the ongoing effects of the virus itself.” At the same time, Powell said, “It is very difficult to predict the persistence of supply constraints or their effects on inflation.” If inflation shows signs of becoming more persistent, the bank will act to preserve price stability. “We remain attentive to risks and will ensure that our policy is well positioned to address the full range of plausible economic outcomes,” Powell added. No rate hikes for now: Powell noted that the reduction in asset purchases does not mean the Fed plans to raise interest rates soon. “We don’t think it is a good time to raise interest rates because we want to see the labor market heal further,” he said. The Fed has held interest rates near zero since the Covid-19 pandemic walloped the economy in early 2020. Economists polled by Bloomberg said they don’t expect to see interest rate hikes until the second half of next year, though much depends on the course of the recovery — and the extent to which inflation persists. “Policy makers appear to want to preserve the option to hike as soon as taper ends if inflation is elevated,” Bloomberg economists Anna Wong, Andrew Husby and Eliza Winger [said](. “However, completing the taper is a necessary, but insufficient condition for the rate liftoff.” --------------------------------------------------------------- Send your feedback to yrosenberg@thefiscaltimes.com. And please tell your friends they can [sign up here]( for their own copy of this newsletter. --------------------------------------------------------------- News - [After Loss in Virginia, Democrats Look to Speed Up Their Stalled $3 Trillion Spending Agenda]( – Washington Post - [Elections Spur Doubts for Biden’s Agenda, Party’s Outlook]( – Washington Post - [Dems Vow to Plow Forward on Biden Agenda, Even After Election Faceplants]( – Politico - [Democrats Need to Produce Results After Dismal Election Night, Biden Says]( – Axios - [Democrats Look at Expanding Minimum Tax on Wealthy in Exchange for State and Local Tax Break]( – Washington Post - [Democrats Push for Agreement on Tax Deduction That Benefits the Rich]( – New York Times - [House Democrats Revive Paid Leave Program, Ignoring Manchin’s Concerns]( – New York Times - [How Schumer’s Left Turn Shaped the Democratic Agenda and Set Up a Chaotic Final Scramble Over Biden Proposals]( – Washington Post - [Inflation Bonds Are Getting a Big Rate Bump]( – New York Times - [Biden Says Families Separated at the Border Under Trump Won't Receive $450,000]( – CNN - [Leaders Depart and COP26 Climate Summit Turns to Finding the Money]( – Washington Post - [Biden Hails Pandemic ‘Turning Point’ as 5-to-11-Year-Olds Start Getting Vaccinated]( – Washington Post Views and Analysis - [A Sobering Reality Hits Democrats After Election Losses]( – Dan Balz, Washington Post - [The Real Lesson Democrats Should Take From This Election]( – Paul Waldman, Washington Post - [Why Are Democrats Struggling So Much Politically Right Now?]( – Amber Phillips, Washington Post - [Democrats Let Biden Down. McAuliffe — and Democracy — Paid the Price]( – Dana Milbank, Washington Post - [Democrats Would Only Lose Again by Decimating Biden’s Agenda]( – Ed Kilgore, New York - [One Lesson of Virginia? The Culture War Still Works]( – Jeff Greenfield, Politico - [Democrats Have Insulted, Cajoled and Begged Manchin. Now They Should Listen to Him]( – Charles Lane, Washington Post - [It's Smaller Than They'd Hoped, but Democrats Have Their 'Win' on Drug Prices]( – Rachel Roubein, Washington Post - [Fed Sets a Date With Bond Vigilantes in Eight Months]( – Brian Chappatta, Bloomberg Copyright © 2020 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website or through Facebook. The Fiscal Times, 399 Park Avenue, 14th Floor, New York, NY 10022, United States Want to change how you receive these emails? [Update your preferences]( or [unsubscribe](