An epic week in Washington is underway: Congress is contending with budget reconciliation, an infrastructure plan and debt ceiling brinkmanship – all at once! The outcome remains uncertain, and America’s prosperity and wallets are held in the balance.
Get ready for an eyes-glazed-over week of politics and process. But this DC sausage-making has implications for virtually every American family. What’s happening right now is nothing less than a once-in-a-generation re-alignment of your kitchen table economics.
Build Back Better
President Joe Biden and Democrats want a cradle-to-grave remake of the American economy. Investments for children, parents, working people and seniors would be paid for by rich people and big companies. The goal: To lower childcare and health care costs with universal pre-K and two free years of community college. There’s paid maternity and sick leave, subsidies for Obamacare, more Pell grants, and investments in climate resilience. And for seniors, Medicare would cover dental and eye care and hearing aids. It’s a huge $3.5 trillion-over-10 years wish-list.
Democrats hail it as the most meaningful expansion of the safety net since LBJ’s Great Society or FDR’s New Deal. Republicans hate it for the same reason.
Republicans oppose the tax hikes to pay for it and the scope of the social spending. And among Democrats there is some infighting over process and size.
“This policy migraine has several weeks to go, as Republicans fight Democrats and Democrats fight other Democrats,” says Greg Valliere, chief US strategist for AGF Investments.
Some Democrats in high-tax states insist on reinstating state and local tax (SALT) deductions. And some progressives may balk if moderate Democrats succeed in watering down the corporate tax hikes or the size of the package.
Republicans are so opposed to Democrats’ social agenda, they vow not to help raise the debt ceiling. On CNN’s State of the Union, Sen. Pat Toomey said Democrats are in the midst of “a very damaging spending spree on a scale that we have never seen, and they want us to come along and authorize the borrowing to help pay for it.” He vowed the ceiling would need to be raised by Democrats alone.
It’s the latest political game with America’s credit card limit. Without raising the debt ceiling, the Treasury Department can’t borrow money to pay the bills for what Congress has already spent. Sometime next month, Treasury would have to pick and choose which bills to pay, potentially giving Americans IOUs instead of Social Security checks, pay for troops, or child tax credit deposits.
Even an accidental short default could spark a financial crisis, cost the government billions more in borrowing costs and potentially spike interest rates for the rest of us.
“Debt default is a serious issue,” says Valliere, but Wall Street players so far are betting the debt ceiling will be resolved.
“It will get raised eventually with Democrats forced to take most of the ownership,” Valliere says.
But there is bipartisan support for $1 trillion infrastructure bill. Again, these are investments virtually every family would feel, on the roads they drive and the bridges they cross. Think better commute times, lower car maintenance costs and even potentially lower food costs because farmers currently must navigate around creaky bridges and roads.
The administration believes there are much-needed investments in the power grid, clean water, airports, seaports, high speed internet, public transportation, and EV charging stations. It’s a simple intelligence test for Washington, with broad popular support, wrapped up in DC’s hell week.