Congress wonders how to pay for Biden’s infrastructure proposal

The $3 trillion price tag on President Biden’s infrastructure and climate proposal is a sign of the White House’s increasing embrace of deficit-financed spending.

The tax increases and revenue measures being floated fall well short of the price tag, meaning the government would have to borrow significant sums to finance the rest of the package.

On the heels of the $1.9 trillion American Rescue Plan, which was meant to shore up the coronavirus-battered economy, another major increase to the nation’s debt burden is raising alarms of potential economic and political blowback.

“I expect most of the plan will not be paid for,” said Stifel chief Washington policy strategist Brian Gardner. “I think the percentage is going to be under 50.”

The plan the Biden administration is putting together, which may be separated out into multiple bills, is expected to overhaul the nation’s physical infrastructure, work to scale back climate change and fund a slew of social programs such as extending child tax credits and funding prekindergarten and child care.

Tax credits in the package could add another $1 trillion to its total cost.

But rough estimates of the reported provisions being floated to cover the costs, such as raising the corporate tax to 28 percent, raising the top individual tax to 39.6 percent, taxing high-earner capital gains like regular income and changing rules around inheritance taxes, add up to just more than $2 trillion.

During his campaign, Biden floated other ideas for raising revenues, but getting them all through could be a tough sell and would leave few tools for tackling the long-term debt and saving government trust funds headed for bankruptcy.

“If we look back at what President Biden proposed in the campaign, between tax offsets and health offsets, there’s $3 trillion to $4 trillion worth of stuff there, so if you’re willing to be aggressive enough the money is there,” said Marc Goldwein, head of policy at nonpartisan Committee for a Responsible Federal Budget. “But being aggressive enough is doing a lot of heavy lifting.”

The biggest hurdle Biden will face in advancing the cost measures is opposition from Republicans.

Already, Senate Minority Leader Mitch McConnell (R-Ky.) has begun referring to the infrastructure plan as a “Trojan horse” for raising taxes.

“I don’t think there’s going to be any enthusiasm on our side for a tax increase,” he said last week.

When asked what the GOP appetite was for raising taxes, Sen. Susan Collins (R-Maine), a centrist who has crossed the aisle for bipartisan proposals in the past, laughed.

“I would not anticipate that it would be well-received,” she said.

Progressives are pushing Democratic leadership to take unilateral action and pass legislation through reconciliation, the same budgetary procedure they used to avoid a GOP filibuster for the COVID-19 relief bill.

Republicans, they note, are saying they support infrastructure but oppose both increased deficit spending as well as tax increases that would cover the costs. That leaves only spending cuts, which Democrats are likely to oppose, and reforms that would reduce costs, which are few and far between.

But centrist Democrats such as Sen. Joe Manchin (W.Va.) will make it tougher to run up huge deficits, even with procedures that leave the GOP out. Manchin said his starting position on a major infrastructure bill was that it should be entirely paid for.

When faced with the options of either passing major campaign promises or reining in the deficit, Gardner says, the choice for politicians is clear. Voters love the benefits of government action but loathe tax increases.

That approach is unlikely to change anytime soon, given the slow and delayed effects of large deficits on the economy and the increased market indifference to the growing debt.

“It has become less of an issue, and I don’t think lawmakers are really overly concerned about a run-up in deficits,” he said. He predicted that will last at least until the time markets eventually “react by pushing up interest rates.”

Republicans have already started warning that untamed deficit spending will lead to a spike in inflation, though Federal Reserve Chairman Jerome Powell said Tuesday that he expects inflationary effects of the most recent coronavirus package “will be neither particularly large nor persistent.”