Larry Summers, who served as Treasury secretary under former President Clinton and was a top economic adviser to former President Obama, said Monday that Congress should pay for part of its infrastructure package by repurposing cash approved for emergency COVID-19 spending.
“Where possible, infrastructure investments should be financed by reprogramming of Rescue Plan funds, such as those now being used by some states to finance tax cuts,” he wrote in a Washington Post op-ed.
Summers has raised the alarm on the prospects that President Biden’s big spending plans, including the $1.9 trillion COVID-19 relief bill passed in March, could overheat the economy.
Summers argued that some of the inflationary pressure could be relieved by taking money from the rescue plan and putting it toward infrastructure, which would both take longer to spend and increase the nation’s productive capacity. He contended that the COVID-19 relief package was larger than what the economy needed to bounce back.
“It would be a grave error to cut back excessively on public-investment ambitions out of inflation concerns,” he wrote. “That is not because of the immediate jobs they create, but because of the long-term increases they generate in productive potential, sustainability and inclusivity.”
Summers’s latest op-ed comes as Biden negotiates with congressional Republicans over the size and scope and how to pay for his proposed infrastructure plan. Last week, the White House lowered it’s $2.5 trillion offer to $1.7 trillion, a figure that remains well above the $600 billion to $800 billion range Republicans have floated.
One of the most contentious issues is how to pay for the plan. Biden wants to raise taxes on companies and high earners that were cut under the 2017 tax law passed by GOP lawmakers. Republicans say reopening that discussion is a non-starter.
Repurposing unspent funds from the COVID-19 relief bill could help bridge some of the gap, but many Democrats see the bill’s investments in state and local government, vaccines and anti-poverty measures as key to the recovery, despite worries about inflation.
Federal Reserve Chair Jerome Powell has said that the recent spike in prices is likely to be transitory, and promised to keep interest rates low until a trend of sustained inflation became clearer.
During a Thursday press briefing, White House press secretary Jen Psaki said the administration “would need to assess whether these funds are needed and not take them away from fighting the pandemic that we continue to battle every day” before agreeing to repurpose them.