Tonight, during his State of the Union address, Joe Biden plans to turn to deficit reduction. The move appears designed to persuade one man — Sen. Joe Manchin of West Virginia — to sign parts of the president’s Build Back Better proposal.
This new emphasis might give Hill buffs and staffers flashbacks. Not too long ago, a progressive new president, struggling to hold his coalition together, swung into austerity soon after a once-in-a-generation recession and mired working families in a half-decade. lost decade.
Fortunately, the economic situation is much different today than it was ten years ago. Congress has provided many incentives to fight the coronavirus recession; economists seem to have a better grip on how much the country can borrow; and Democrats are focused on revenue increases, not blind spending cuts. The Biden administration may not be able to do much to curb inflation, as Manchin wants. But it offers plenty of options for soaking up red ink without putting families at undue risk.
A year ago, Biden called on Congress to “build back better,” pushing for a new New Deal and presenting Big, Big Government as the urgent solution to a number of societal problems, from the high cost of health services to watch out for the climate crisis. His social policy bill ended up containing a number of provisions intended to ensure that he did not add to the country’s deficits. Democrats have suggested beefing up IRS enforcement, closing tax loopholes and making several of the bill’s spending provisions temporary, including funding for universal pre-kindergarten and subsidies for health coverage. private insurance.
Had the bill’s social spending become permanent, it would have added to the debt, absent other changes. This fact, along with concerns about the complexity of the bill, the overheating economy, and changes in energy policy, led Manchin to withdraw his support. (Much of the infrastructure spending legislation passed in a separate bill, with bipartisan votes.) “We’re not going in the right direction with our debt, with inflation, with any of our monetary policies,” Manchin told reporters last month. “The most important thing we have to deal with is our fiscal responsibilities.”
Biden seems to have gotten the message. This time around, it seems likely the Democrats will be asking for more money for kids and seniors, but also more money for Uncle Sam, with a slimmer set of proposals (Build Back a Bit, I guess) . Biden doesn’t appear to be suggesting — and no one in Washington is demanding — Obama-era austerity, in which Democrats considered slashing means-tested Social Security and Medicare, and struck deals with Republicans cutting spending on a range of federal programs by 5 to 8 percent.
This softer, gentler form of deficit reduction is less likely to stifle economic expansion than the Obama-era cuts were. Already, the recovery from the coronavirus recession has been much stronger, much broader and much faster than the recovery from the Great Recession, thanks to the trillions and trillions of dollars Congress has spent on stimulus checks, in support of small businesses, cash for parents, and an expansion of the unemployment insurance system. Moreover, economists are much less concerned about the country’s debt.
If Congress were to begin reducing the nation’s deficits, which are already shrinking on their own, incremental tax increases would be a sure way to do so. Tax cuts for the 1% do little to amplify growth, as we discovered under the George W. Bush and Donald Trump administrations. But removing them wouldn’t do too much to slow him down either.
Inflation is a trickier problem. The Fed should raise interest rates, possibly sharply, this year to cool the economy and keep prices low. Biden has a series of supply-side proposals that he says will lower the cost of energy, childcare and transportation, as well as prescription drug prices. Maybe, but maybe not quickly. The rise in inflation is partly due to factors largely beyond the administration’s control, such as supply chain issues related to the coronavirus. But Manchin wants inflation and debt to be front and center, and for now Biden appears to be taking the senator’s view on the state of the union as his own.