Update 550 — Senate Stays in Session
To Debate Infrastructure Down Payment
With the nation’s economy poised to recover from the COVID-19 pandemic, the bipartisan infrastructure bill serves as a critical down payment on rebuilding American transportation systems and ensuring the recovery is robust, broad-based, equitable, and durable.
The Congressional Budget Office estimated yesterday that the bill as drafted would add $256 billion in budget deficits over a decade. Some Senators have said they want the bill to be entirely paid for, but it is unclear whether the report will make them reconsider their support.
Below, we look at the bill’s key provisions and status in the Senate, review its prospects in the House, and make the macroeconomic case that this bill is the beginning of a down payment with more to follow.
Good weekends all…
State of Play in the Senate
Last night, Senate Majority Leader Schumer filed a cloture motion for the $1.2 trillion bipartisan infrastructure bill. The Senate will vote on the cloture motion on Saturday, with a vote on final passage expected early next week. After that, the Senate will immediately take up the FY2022 budget resolution with reconciliation instructions. This process will likely take all of next week, including a lengthy vote-a-rama with politically charged amendments. All 50 Democrats are expected to vote yes on the resolution, which requires only a simple majority for passage.
This morning’s jobs report showed nearly 1 million new jobs added in July and the unemployment rate dropping to 5.4 percent. These numbers depict an economy in recovery, but still in need of long-term investments that overwhelming numbers in the Senate are calling for. Total employment is now 5.7 million jobs below its pre-pandemic level, while unemployment is still quite far from the pre-pandemic rate of 3.5 percent.
If passed, the bipartisan bill would be the largest investment in physical infrastructure in U.S. history. The bill has a particular emphasis on transportation, including the standard surface transportation reauthorization, new transportation projects, and generational investments in water and broadband infrastructure. The bill’s $550 billion in new spending gives a significant amount of discretionary funding to the Department of Transportation.
Bipartisan Infrastructure Bill Components
During a lengthy amendment process, Senators put forward hundreds of generally minor amendments to the massive bipartisan legislation. One could prove a roadblock to final passage. Sens. Wyden, Toomey, Lummis, and Cruz proposed an amendment to the bill’s cryptocurrency reporting rules to carve out miners, Decentralized Finance (DeFi), and developers for tools like digital wallets. These Senators are concerned the bill unfairly targets miners and DeFi and discourages development of software for the industry. But the amendment could create a two-tiered market that would shift the industry toward an unregulated market, creating unsupervised risk. A more narrow competing amendment, endorsed by the White House, only exempts miners with proof of work.
The new spending is intended to be fully paid for through a series of offsets. These include unspent funds from previous COVID relief packages, corporate user fees, tax enforcement on cryptocurrencies, superfund fees, pension fund smoothing, delay of the Trump administration’s Medicare rebate rule, 5G spectrum auctions, and presumed revenues from economic growth, among others. Many of these pay-fors use gimmicky math, and the CBO score of the bill indicates that the legislation will add $256 billion to the deficit.
Outlook in the House
The bill’s outlook in the House is more uncertain. Given an endorsement by the bipartisan Problem Solvers’ Caucus, a majority of members will likely support the bill on the merits. Timing is as much an issue as content. Democratic leadership faces conflicting pressures on when to take up the bill from progressives and moderates in the caucus.
The House is scheduled to remain in recess for the remainder of August. Democratic leadership has indicated they will bring members back for votes if necessary this month but no firm decisions have been made. Speaker Pelosi previously promised to delay voting on the bipartisan infrastructure bill until the Senate passes a reconciliation bill containing the remaining elements of Biden’s proposals.
That bill is far from ready given both the House and Senate must first pass an FY2022 budget resolution with reconciliation instructions. Some moderate House members have indicated that they might vote against a budget resolution unless the House first takes up the bipartisan bill.
The process could be further complicated if the House amends the bipartisan bill. Transportation and Infrastructure Chair DeFazio has indicated he wants to amend the bipartisan bill while the House awaits completion of the reconciliation bill, requiring another Senate vote on an amended bill or a conference to settle differences.
Republicans are dead set against reconciliation, and some Republican Senators have previously indicated a belief that allowing a bipartisan infrastructure deal to pass will make moderate Democrats more reluctant to support a large reconciliation bill. But a large reconciliation bill is exactly what Democrats need to supplement the bipartisan bill.
Macroeconomic Value of the Bill
Progressives’ efforts to secure assurances for a strong reconciliation bill are supported by sound economics. The bipartisan bill by itself would provide a long-term boost to the economy, but is insufficient to meet the economic moment. We evaluate the potential economic impact of the bipartisan bill alone versus the full scope of Biden’s Build Back Better proposals.
- Bipartisan Bill Alone: In general, public infrastructure spending can be expected to provide a boost to the macroeconomy. The programs in the bipartisan bill are designed to be investments to the economy felt over the long term. For that reason, the bill would ideally ease inflationary pressures over time. The bipartisan bill would modestly boost GDP and reduce unemployment over the next few years, per a recent analysis by Moody’s Analytics. The bill would create over 600,000 new jobs at its peak within a few years, and GDP growth would grow at 2.9 percent in 2023 compared to a projected 2.3 percent in the bill’s absence.
- Bipartisan Bill + Reconciliation Bill: A strong reconciliation bill with “human infrastructure” spending would provide a much more significant boost to the economy if passed with the bipartisan bill. Per Moody’s, a $3.5 trillion reconciliation bill would provide a significant short-term boost to GDP — due to extended tax credits for low-income families and increased spending on social programs — and several long-term benefits due to increased labor force participation and labor productivity. Moody’s projects that the unemployment rate would decrease to 3.9 percent in 2031 if both bills pass, compared to 4.4 percent with just the bipartisan bill. Notably, GDP would grow by a yearly average of 4.2 percent through 2024 if both bills are passed, compared to 3.8 percent if just the bipartisan bill passes.
These projections underscore the imperative for passing as many of Biden’s initial proposals as possible. The bipartisan infrastructure bill, though a step in the right direction, is insufficient by itself. In the current low-interest-rate environment, Democrats can afford to spend big, and the reconciliation bill offers the best chance to ensure the strongest and most broad-based recovery possible.
Down Payment on 2022
Democrats’ policy initiatives continue to enjoy broad public support: 65 percent support the bipartisan bill, and 66 percent support “a $3.5 trillion investment plan,” according to a recent poll. This broad popularity and the immense economic potential of a reconciliation package justifies House progressives’ insistence to wait for a strong reconciliation bill before taking up the bipartisan bill. Republican Senators have already begun to focus on killing the reconciliation bill. If the bipartisan bill passes quickly by itself, that could blunt the momentum behind any reconciliation package.
Of more immediate importance, however, is passing a budget resolution with reconciliation instructions. Democrats must remain united on this vote to ensure that a reconciliation effort is not killed from the start. Reconciliation will allow Democrats to pass as many priorities as possible within the restrictions of the Byrd Rule. The bigger the final bill, the greater the impact on the economic recovery, and the more convincing case Democrats can make to voters in 2022 that they deserve to keep their majorities.