American Rescue Plan (2021)

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    Democrats Look to Smooth the Way for Biden’s Infrastructure Plan

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    House Democrats face hurdles to pushing through the president’s big spending plans, including Republican opposition and resistance from their own ranks.WASHINGTON — Senior Democrats on Monday proposed a tax increase that could partly finance President Biden’s plans to pour trillions of dollars into infrastructure and other new government programs, as party leaders weighed an aggressive strategy to force his spending proposals through Congress over unified Republican opposition.The moves were the start of a complex effort by Mr. Biden’s allies on Capitol Hill to pave the way for another huge tranche of federal spending after the $1.9 trillion stimulus package that was enacted this month. The president is set to announce this week the details of his budget, including his much-anticipated infrastructure plan.He is scheduled to travel to Pittsburgh on Wednesday to describe the first half of a “Build Back Better” proposal that aides say will include a total of $3 trillion in new spending and up to an additional $1 trillion in tax credits and other incentives.Yet with Republicans showing early opposition to such a large plan and some Democrats resisting key details, the proposals will be more difficult to enact than the pandemic aid package, which Democrats muscled through the House and Senate on party-line votes.In the House, where Mr. Biden can currently afford to lose only eight votes, Representative Tom Suozzi, Democrat of New York, warned that he would not support the president’s plan unless it eliminated a rule that prevents taxpayers from deducting more than $10,000 in local and state taxes from their federal income taxes. He is one of a handful of House Democrats who are calling on the president to repeal the provision.And in the Senate, where most major legislation requires 60 votes to advance, Senator Chuck Schumer of New York, the majority leader, was exploring an unusual maneuver that could allow Democrats to once again use reconciliation — the fast-track budget process they used for the stimulus plan — to steer his spending plans through Congress in the next few months even if Republicans are unanimously opposed.While an aide to Mr. Schumer said a final decision had not been made to pursue such a strategy, the prospect, discussed on the condition of anonymity, underscored the lengths to which Democrats were willing to go to push through Mr. Biden’s agenda.The president’s initiatives will feature money for traditional infrastructure projects like rebuilding roads, bridges and water systems; spending to advance a transition to a lower-carbon energy system, like electric vehicle charging stations and the construction of energy-efficient buildings; investments in emerging industries like advanced batteries; education efforts like free community college and universal prekindergarten; and measures to help women work and earn more, like increased support for child care.The proposals are expected to be partly offset by a wide range of tax increases on corporations and high earners.In Pittsburgh, Mr. Biden will lay out “the first of two equally critical packages to rebuild our economy and create better-paying jobs for American workers,” Jen Psaki, the White House press secretary, told reporters on Monday.“He’ll talk this week about investments we need to make in domestic manufacturing, R & D, the caregiving economy and infrastructure,” she added. “In the coming weeks, the president will lay out his vision for a second package that focuses squarely on creating economic security for the middle class through investments in child care, health care, education and other areas.”Mr. Biden’s budget office is also expected this week to release his spending request for the next fiscal year, which is separate from the infrastructure plan. White House officials said it would lay out funding levels agency by agency, so that congressional committees could begin to write appropriations bills for next year. For the first time in a decade, they will not be limited by spending caps imposed by Congress. (Lawmakers have agreed to break those caps in recent years.)That request will not include Mr. Biden’s tax plans, the officials said. The administration’s full budget will be presented to Congress this spring.For now, some Democrats are already jockeying to make sure that their proposals are part of the plan.Construction in Miami this month. Mr. Biden’s plan will include investments in traditional infrastructure projects, as well as climate change initiatives and social programs.Joe Raedle/Getty ImagesSenator Chris Van Hollen, Democrat of Maryland, and a group of liberal Democrats on Monday proposed scaling back a provision in the tax code that allows wealthy heirs to reduce what they pay on assets they inherit, known as stepped-up basis. The proposal reflects one of Mr. Biden’s campaign promises, and officials have suggested that it could be used to fund his infrastructure plans.Current law reduces the taxes that heirs owe on assets that appreciate over time. Say a person buys $1 million worth of stock, and the value of that stock rises to $10 million before the person dies. If the person sold the stock before death, she would owe taxes on a $9 million gain. But if she died first, and her heirs immediately sold the stocks she gave them, they would not owe any capital gains taxes. Under the new proposal, which exempts $1 million in gains, the heirs would owe taxes on the remaining $8 million gain.The full exemption reduces federal tax revenues by more than $40 billion a year. It was unclear on Monday how much the Democratic plan would raise in revenues to help Mr. Biden’s spending efforts.Other Democrats pushed the president to include further tax cuts in his plan.Mr. Suozzi of New York said in an interview on Monday that he would not support changes to the tax code without a full repeal of the so-called SALT cap, which limits the amount of local and state taxes that can be deducted from federal income taxes. That change largely hurt higher-income households in high-tax states like California, Maryland and New York.House Democrats passed legislation in 2019 that would have temporarily removed the cap, but it stalled in the Senate and attempts to include it in pandemic relief legislation were unsuccessful.“It has to be elevated as part of the conversation,” Mr. Suozzi said. “There’s a lot of different talk about going big and going bold and making significant changes to the tax code. I want to make SALT part of the conversation.”.css-yoay6m{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}@media (min-width:740px){.css-yoay6m{font-size:1.25rem;line-height:1.4375rem;}}.css-1dg6kl4{margin-top:5px;margin-bottom:15px;}.css-k59gj9{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;width:100%;}.css-1e2usoh{font-family:inherit;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;border-top:1px solid #ccc;padding:10px 0px 10px 0px;background-color:#fff;}.css-1jz6h6z{font-family:inherit;font-weight:bold;font-size:1rem;line-height:1.5rem;text-align:left;}.css-1t412wb{box-sizing:border-box;margin:8px 15px 0px 15px;cursor:pointer;}.css-hhzar2{-webkit-transition:-webkit-transform ease 0.5s;-webkit-transition:transform ease 0.5s;transition:transform ease 0.5s;}.css-t54hv4{-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-1r2j9qz{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-e1ipqs{font-size:1rem;line-height:1.5rem;padding:0px 30px 0px 0px;}.css-e1ipqs a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;}.css-e1ipqs a:hover{-webkit-text-decoration:none;text-decoration:none;}.css-1o76pdf{visibility:show;height:100%;padding-bottom:20px;}.css-1sw9s96{visibility:hidden;height:0px;}#masthead-bar-one{display:none;}#masthead-bar-one{display:none;}.css-1cz6wm{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;font-family:’nyt-franklin’,arial,helvetica,sans-serif;text-align:left;}@media (min-width:740px){.css-1cz6wm{padding:20px;width:100%;}}.css-1cz6wm:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1cz6wm{border:none;padding:20px 0 0;border-top:1px solid #121212;}Frequently Asked Questions About the New Stimulus PackageThe stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more. Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read moreThis credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.He is among the Democrats who have requested a meeting with Mr. Biden to discuss repealing the cap, according to a letter obtained by The New York Times.“No SALT, no dice,” declared another Democrat, Representative Josh Gottheimer of New Jersey.“There’s plenty of ways, in my opinion, to raise revenue and reinstate SALT,” he said in an interview, adding that he wanted to see the full details of the proposal.Ms. Psaki said on Monday that administration officials “look forward to working with a broad coalition of members of Congress to gather their input and ideas, and determine the path forward, create good jobs and make America more competitive.”While members of both parties have said they support a major infrastructure initiative, Republicans have balked at the details of Mr. Biden’s opening bid, which includes not only sweeping investments in traditional public works but also more ambitious proposals to tackle climate change and education, and tax increases to help offset the considerable costs.“Unfortunately, it looks like this is not going to head in the direction I had hoped,” Senator Mitch McConnell of Kentucky, the minority leader, said at an event in his state. “My advice to the administration is: If you want to do an infrastructure bill, let’s do an infrastructure bill. Let’s don’t turn it into a massive effort to raise taxes on businesses and individuals.”“I’d love to do an infrastructure bill,” he added. “I’m not interested in raising taxes across the board on America. I think it will send our economy in the wrong direction.”Should Democratic lawmakers try to move Mr. Biden’s plan through the regular legislative process and overcome the 60-vote filibuster threshold, at least 10 Republicans would need to join them.But the reconciliation process allows a fiscal package included in the budget resolution to be shielded from a filibuster. Mr. Schumer has asked the Senate’s top rule-enforcer whether Democrats can revisit the budget blueprint that was approved last month to include the infrastructure plan, which would enable them to undertake a second reconciliation process before the end of the fiscal year on Sept. 30 and pass it with a simple majority.Senator Chuck Schumer of New York and other top Democrats are arguing that a key congressional law allows them to essentially redo the budget blueprint for the current fiscal year.Anna Moneymaker for The New York TimesBecause there is no precedent for passing two reconciliation packages in the same budget year with the same blueprint, Elizabeth MacDonough, the parliamentarian, will have to issue guidance on whether doing so is permissible under Senate rules.If Democrats succeed, they could potentially use the reconciliation maneuver at least two more times this calendar year to push through more of Mr. Biden’s agenda. More

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    Fear of Inflation Finds a Foothold in the Bond Market

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    There is little evidence for a big jump in prices, but some economists and bond investors fear President Biden’s policies could lead to inflation.The so-called bond vigilantes may be back, 30 years after they led a sell-off in Treasury securities over the prospect of higher government spending by a new Democratic administration.The Federal Reserve has downplayed the risk of inflation, and many experts discount the danger of a sustained rise in prices. But there is an intense debate underway on Wall Street about the prospects for higher inflation and rising interest rates.Yields on 10-year Treasury notes have risen sharply in recent weeks, a sign that traders are taking the inflation threat more seriously. If the trend continues, it will put bond investors on a collision course with the Biden administration, which recently won passage of a $1.9 trillion stimulus bill and wants to spend trillions more on infrastructure, education and other programs.The potential confrontation made some market veterans recall the 1990s, when yields on Treasury securities lurched higher as the Clinton administration considered plans to increase spending. As a result, officials soon turned to deficit reduction as a priority.Ed Yardeni, an independent economist, coined the term bond vigilante in the 1980s to describe investors who sell bonds amid signs that fiscal deficits are getting out of hand, especially if central bankers and others don’t act as a counterweight.As bond prices fall and yields rise, borrowing becomes more expensive, which can force lawmakers to spend less.“They seem to mount up and form a posse every time inflation is making a comeback,” Mr. Yardeni said. “Clearly, they’re back in the U.S. So while it’s fine for the Fed to argue inflation will be transitory, the bond vigilantes won’t believe it till they see it.”Yields on the 10-year Treasury note hit 1.75 percent last week before falling back this week, a sharp rise from less than 1 percent at the start of the year.Not all the sellers necessarily oppose more government spending — some are simply acting on a belief that yields will move higher as economic activity picks up, or jumping on a popular trade. But the effect is the same, pushing yields higher as prices for bonds fall.Yields remain incredibly low by historical standards and even recent trading. Two years ago, the 10-year Treasury paid 2.5 percent — many bond investors would happily welcome a return to those yields given that a government note bought today pays a relative pittance in interest. And during the Clinton administration, yields on 10-year Treasurys rose to 8 percent, from 5.2 percent between October 1993 and November 1994.Still, Mr. Yardeni believes the bond market is saying something policymakers today ought to pay attention to.“The ultimate goal of the bond vigilante is to be heard, and they are blowing the whistle,” he said. “It could come back to bite Biden’s plans.”Yet evidence of inflation remains elusive. Consumer prices, excluding the volatile food and energy sectors, have been tame, as have wages. And even before the pandemic, unemployment plumbed lows not seen in decades without stoking inflation.Indeed, the bond vigilantes remain outliers. Even many economists at financial firms who expect faster growth as a result of the stimulus package are not ready to predict inflation’s return.“The inflation dynamic is not the same as it was in the past,” said Carl Tannenbaum, chief economist at Northern Trust in Chicago. “Globalization, technology and e-commerce all make it harder for firms to increase prices.”What’s more, with more than nine million jobs lost in the past year and an unemployment rate of 6.2 percent, it would seem there is plenty of slack in the economy.That’s how Alan S. Blinder, a Princeton economist who was an economic adviser to President Bill Clinton and is a former top Fed official, sees it. Even if inflation goes up slightly, Mr. Blinder believes the Fed’s target for inflation, set at 2 percent, is appropriate.“Bond traders are an excitable lot, and they go to extremes,” he said. “If they are true to form, they will overreact.”Indeed, there have been rumors of the bond vigilantes’ return before, like in 2009 as the economy began to creep out of the deep hole of the last recession and rates inched higher. But in the ensuing decade, both yields and inflation remained muted. If anything, deflation was a greater concern than rising prices.It is not just bond traders who are concerned. Some of Mr. Blinder’s colleagues from the Clinton administration are warning that the conventional economic wisdom hasn’t fully accepted the possibility of higher rates or an uptick in prices..css-yoay6m{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}@media (min-width:740px){.css-yoay6m{font-size:1.25rem;line-height:1.4375rem;}}.css-1dg6kl4{margin-top:5px;margin-bottom:15px;}.css-k59gj9{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;width:100%;}.css-1e2usoh{font-family:inherit;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;border-top:1px solid #ccc;padding:10px 0px 10px 0px;background-color:#fff;}.css-1jz6h6z{font-family:inherit;font-weight:bold;font-size:1rem;line-height:1.5rem;text-align:left;}.css-1t412wb{box-sizing:border-box;margin:8px 15px 0px 15px;cursor:pointer;}.css-hhzar2{-webkit-transition:-webkit-transform ease 0.5s;-webkit-transition:transform ease 0.5s;transition:transform ease 0.5s;}.css-t54hv4{-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-1r2j9qz{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-e1ipqs{font-size:1rem;line-height:1.5rem;padding:0px 30px 0px 0px;}.css-e1ipqs a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;}.css-e1ipqs a:hover{-webkit-text-decoration:none;text-decoration:none;}.css-1o76pdf{visibility:show;height:100%;padding-bottom:20px;}.css-1sw9s96{visibility:hidden;height:0px;}#masthead-bar-one{display:none;}#masthead-bar-one{display:none;}.css-1cz6wm{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;font-family:’nyt-franklin’,arial,helvetica,sans-serif;text-align:left;}@media (min-width:740px){.css-1cz6wm{padding:20px;width:100%;}}.css-1cz6wm:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1cz6wm{border:none;padding:20px 0 0;border-top:1px solid #121212;}Frequently Asked Questions About the New Stimulus PackageThe stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more. Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read moreThis credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.Robert E. Rubin, Mr. Clinton’s second Treasury secretary, echoed that concern but took pains to support the stimulus package.“There is a deep uncertainty,” Mr. Rubin said in an interview. “We needed this relief bill, and it served a lot of useful purposes. But we now have an enormous amount of stimulus, and the risks of inflation have increased materially.”Mr. Rubin acknowledged that predicting inflation was very difficult, but he said policymakers ought to be ready to fight it. “If inflationary pressures do take off, it’s important to get ahead of them quickly before they take on a life of their own.”The Federal Reserve has plenty of options. Not only is it buying up debt, which keeps yields down, but the Fed chair, Jerome H. Powell, has called for keeping monetary policy relatively loose for the foreseeable future. If higher prices do materialize, the Fed could halt asset purchases and raise rates sooner.“We’re committed to giving the economy the support that it needs to return as quickly as possible to a state of maximum employment and price stability,” Mr. Powell said at a news conference last week. That help will continue “for as long as it takes.”While most policymakers expect faster growth, falling unemployment and a rise in inflation to above 2 percent, they nonetheless expect short-term rates to stay near zero through 2023.But the Fed’s ability to control longer-term rates is more limited, said Steven Rattner, a veteran Wall Street banker and former New York Times reporter who served in the Obama administration.“At some point, if this economy takes off bigger than any one of us expect, the Fed will have to raise rates, but it’s not this year’s issue and probably not next year’s issue,” he said. “But we are in uncharted waters, and we are to some extent playing with fire.”The concerns about inflation expressed by Mr. Rattner, Mr. Rubin and others has at least a little to do with a generational angst, Mr. Rattner, 68, points out. They all vividly remember the soaring inflation of the 1970s and early 1980s that prompted the Fed to raise rates into the double digits under the leadership of Paul Volcker.The tightening brought inflation under control but caused a deep economic downturn.“People my age remember well the late 1970s and 1980s,” Mr. Rattner said. “I was there, I covered it for The Times, and lived through it. Younger people treat it like it was the Civil War.”Some younger economists, like Gregory Daco of Oxford Economics, who is 36, think these veterans of past inflation scares are indeed fighting old wars. Any rise in inflation above 2 percent is likely to be transitory, Mr. Daco said. Bond yields are up, but they are only returning to normal after the distortions caused by the pandemic.“If you have memories of high inflation and low growth in the 1970s, you may be more concerned with it popping up now,” he said. “But these are very different circumstances today.” More

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    Larry Summers Warned About Inflation. Fed Officials Push Back.

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    Mr. Summers, the former Treasury secretary, and other economists say $1.9 trillion more in pandemic relief might overdo it. The Federal Reserve’s vice chair and a regional president disagreed.Federal Reserve officials pushed back on Thursday against concerns raised by two prominent economists — Lawrence H. Summers, the former Treasury secretary, and Olivier J. Blanchard, a former chief economist at the International Monetary Fund — that big government spending could overheat the economy and send inflation rocketing higher.Those warnings have grabbed headlines and spurred debate over the past two months as details of the federal government’s $1.9 trillion pandemic relief bill came together. Mr. Summers in particular has kept them up since the legislation passed, saying it was too much on the heels of large spending packages last year. He recently called the approach the “least responsible” fiscal policy in 40 years while predicting that it had a one-in-three chance of precipitating higher inflation and maybe stagflation, or a one-in-three chance of causing the Fed to raise rates and pushing the economy toward recession.But two leaders at the Fed, which is tasked with using monetary policies to keep inflation steady and contained, gave little credence to those fears on Thursday. Richard H. Clarida, the central bank’s vice chairman, and Charles Evans, the president of the Federal Reserve Bank of Chicago, both responded to questions specifically about Mr. Summers’s and Mr. Blanchard’s warnings.“They have both correctly pointed out that the U.S. has a lot of fiscal support this year,” Mr. Clarida said on an Institute of International Finance webcast. “Where I would disagree is whether or not that is primarily going to represent a long-term, persistent upward risk to inflation, and I don’t think so.”Mr. Clarida said that there was a lot of room for the economy to recover — some 9.5 million jobs that were lost during the pandemic are still gone — and that the effect of the government’s relief spending would diminish over time. He also said that while spenders had pent-up demand, there was also pent-up supply because the service sector had been shut for a year.“At the Fed, we get paid to be attentive and attuned to inflation risks, and we will be,” Mr. Clarida said. But he noted that forecasters didn’t see “undesirable upward pressure” on inflation over time.Mr. Evans told reporters on a call that he wasn’t sure what “overheating” — the danger that top economists have warned about — actually meant.“First off, there’s a conversation of is this the best way to spend money,” he summarized, adding that he didn’t have anything to say about that. “But then there’s sort of like, ‘Oh, this is so much that it is going to overshoot potential output, and there’s a risk that we’re going to get overheating, and then inflation.’”He continued: “What is the definition of overheating? It’s a great word, it evokes all kinds of images, but it’s kind of like potential output is always a strange concept anyway. Can output be too high?”Mr. Evans has been concerned for years that inflation is too tepid, rather than that it might pick up too much. Superweak price pressures can cause problems by risking price declines — which encourage saving and harm debtors — and by robbing the Fed of room to cut interest rates during times of trouble.“I kind of remember the ’70s, too,” a decade when inflation spiraled up and out of control in America, Mr. Evans said. “This isn’t the ’70s. We’ve had trouble getting inflation up.”Inflation has been weak in the United States, and in advanced economies broadly, the past two decades. To try to keep that from turning into a bigger problem, the Fed has been working to “re-anchor” consumer and market expectations to prevent inflation slipping lower. The central bank announced last year that it would begin to aim for 2 percent annual price gains on average over time, allowing for periods of greater increases.Still, no Fed policymaker wants inflation to suddenly spike, eroding consumer purchasing power. If that happened, the Fed might have to lift interest rates rapidly to slow down the economy, throwing people out of work and possibly causing a recession. That’s what Mr. Summers and Mr. Blanchard are warning about..css-yoay6m{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}@media (min-width:740px){.css-yoay6m{font-size:1.25rem;line-height:1.4375rem;}}.css-1dg6kl4{margin-top:5px;margin-bottom:15px;}.css-k59gj9{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;width:100%;}.css-1e2usoh{font-family:inherit;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;border-top:1px solid #ccc;padding:10px 0px 10px 0px;background-color:#fff;}.css-1jz6h6z{font-family:inherit;font-weight:bold;font-size:1rem;line-height:1.5rem;text-align:left;}.css-1t412wb{box-sizing:border-box;margin:8px 15px 0px 15px;cursor:pointer;}.css-hhzar2{-webkit-transition:-webkit-transform ease 0.5s;-webkit-transition:transform ease 0.5s;transition:transform ease 0.5s;}.css-t54hv4{-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-1r2j9qz{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-e1ipqs{font-size:1rem;line-height:1.5rem;padding:0px 30px 0px 0px;}.css-e1ipqs a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;}.css-e1ipqs a:hover{-webkit-text-decoration:none;text-decoration:none;}.css-1o76pdf{visibility:show;height:100%;padding-bottom:20px;}.css-1sw9s96{visibility:hidden;height:0px;}#masthead-bar-one{display:none;}#masthead-bar-one{display:none;}.css-1cz6wm{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;font-family:’nyt-franklin’,arial,helvetica,sans-serif;text-align:left;}@media (min-width:740px){.css-1cz6wm{padding:20px;width:100%;}}.css-1cz6wm:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1cz6wm{border:none;padding:20px 0 0;border-top:1px solid #121212;}Frequently Asked Questions About the New Stimulus PackageThe stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more. Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read moreThis credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.The $1.9 trillion measure that the Biden administration ushered through Congress added to a $900 billion relief package enacted in December and a $2 trillion package last March.Mr. Blanchard, in a March 5 post on Twitter, compared the fresh government spending to a snake swallowing an elephant: “The snake was too ambitious. The elephant will pass, but maybe with some damage.”He more recently said that he had “no clue as to what happens to inflation and rates” but that there is a lot of uncertainty and that things “could go wrong.”Mr. Summers, who led the Treasury Department from 1999 to 2001, wrote in a Feb. 4 Washington Post column that, while it was hugely uncertain, “there is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation.”He said in a Bloomberg Television interview last week that “we are running enormous risks.”But Fed officials don’t think big government outlays will be enough to rewrite the world’s low-inflation story. And if it does stoke a slightly faster pickup, that might be a welcome development.Mr. Clarida acknowledged that price gains were likely to speed up over the next few months, but said he expected most of that “to be transitory” and for inflation to return to “or perhaps run somewhat above” 2 percent in 2022 and 2023.“This outcome would be entirely consistent with the new framework we adopted in August 2020,” he said. More

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    in Economy

    If the Economy Overheats, How Will We Know?

    by

    We asked some prominent participants in the Great Overheating Debate of 2021 to explain what inflationary trends they’re afraid of (or not, as the case may be).“It is strange to me that for years economists pined for a better mix of monetary and fiscal policy, and now we have it and there is a narrative among some that it has to end in disaster,” one economist said.Olivier Douliery/Agence France-Presse — Getty ImagesSome big-name economists argue that the economy will soon overheat because of the Biden administration’s $1.9 trillion pandemic relief and other spending measures.They worry that the economy is being flooded with too much money, a fear only heightened by news that the administration will seek $3 trillion more to build infrastructure, cut carbon emissions and reduce inequality.But in this debate, what overheating would mean — exactly how much inflation, with what kinds of side effects for the economy — has often been vague. So The New York Times asked some prominent participants in the Great Overheating Debate of 2021 to lay out in more detail what they are afraid of, and how we will know if their fears have been realized. See their full answers here.It turns out that the two sides — the overheating worriers and those who think those concerns are misplaced — agree on many points. They have common ground on what a bad outcome might look like, and agree that it will take some time to know whether a problematic form of inflation is really taking root. The differences are in how likely they consider it to happen.The core dispute, one with big consequences for the future of the economy and for the Biden administration, is over the nature of the inflation that is to come.As the economy reopens and Americans spend their stimulus checks and the money they saved during the pandemic, demand for certain goods and services will outstrip supply, driving up prices. That is now pretty much an inevitability.The Biden administration and its allies are betting this will be a one-time event: that prices will recalibrate, industries will adjust and unemployment will fall. By next year they expect a booming economy with inflation back at low, stable levels.The overheating worriers, who include prominent Clinton-era policymakers and many conservatives, believe there is a more substantial chance that one of two more pessimistic scenarios will come true. As vast federal spending keeps coursing through the economy, they fear that high inflation will come to be seen as the new normal and that behavior will adjust accordingly.If people believe we are entering a more inflationary era — after more than a decade when inflation has been persistently low — they could alter their behavior in self-fulfilling ways. Businesses would be quicker to raise prices and workers to demand raises. The purchasing power of a dollar would fall, and the bond investors who lend to the government would demand higher interest rates, making financing the budget deficit trickier.“I don’t think anyone will be too surprised to see massive airfare inflation” in the short term, for example, as the economy reopens, said Wendy Edelberg, director of the Hamilton Project at the Brookings Institution. “Instead, I worry if we start to see signs that people, businesses and financial markets are responding to the level of overheating as if it were permanent.”That situation would leave policymakers, especially at the Federal Reserve, faced with two bad choices: Allow inflation to take off in an upward spiral, or stop it by raising interest rates and quite possibly causing a recession.“Ultimately we’re worried about an outcome in the real economy, which is rapid growth in 2021 followed by a significant reversal in 2022 or 2023 with anything like a recession, negative growth or a sizable increase in the unemployment rate,” said Jason Furman, a former Obama administration economic adviser. “Much of what we call ‘overheating’ is mostly a concern insofar as it triggers that outcome.”Mr. Furman says annual inflation rates of 3.5 percent or higher in late 2021 or 2022 would “create a substantial risk of macroeconomic reactions that create genuine instability and problems in the economy,” and that even a notch lower than that, 2.5 percent to 3.5 percent, could create some problems.Julia Coronado, president of MacroPolicy Perspectives, by contrast, argues that it would take several years of inflation at 3 percent or higher — not just a bump in 2021 or 2022 — before she would worry that inflation expectations could become unmoored, leading to either an inflation-tamping recession or a 1970s-style vicious cycle of ever-higher prices.“It is strange to me that for years economists pined for a better mix of monetary and fiscal policy, and now we have it and there is a narrative among some that it has to end in disaster,” Ms. Coronado said. “I am more optimistic about the macro outlook than I have been in a long time and am far more focused on how quickly the labor market returns to health than any threat from inflation.”As economists view it, inflation — at least the kind worth worrying about — isn’t a one-time event so much as a process.When demand for goods and services expands faster than the supply of them, consumers simply bid up the price of finite goods, and businesses bid up wages to try to keep up. This begins a cycle of higher wages fueling higher prices, which in turn fuels higher wages.Such a process began in the mid-1960s and culminated in double-digit inflation in the 1970s. But there are important differences between then and now. For one thing, unions then were more powerful and demanded steep wage increases. For another, a series of one-off events made inflation worse, including the breakdown of the Bretton Woods international currency arrangements and oil embargoes that sent fuel prices soaring.Those were also years when the Fed responded inadequately to rising inflation pressures — it was a series of errors the central bank made, not just one. That experience would suggest that the Fed, having learned the lessons of that era, could nip any new inflationary outburst in the bud..css-yoay6m{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}@media (min-width:740px){.css-yoay6m{font-size:1.25rem;line-height:1.4375rem;}}.css-1dg6kl4{margin-top:5px;margin-bottom:15px;}.css-k59gj9{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;width:100%;}.css-1e2usoh{font-family:inherit;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;border-top:1px solid #ccc;padding:10px 0px 10px 0px;background-color:#fff;}.css-1jz6h6z{font-family:inherit;font-weight:bold;font-size:1rem;line-height:1.5rem;text-align:left;}.css-1t412wb{box-sizing:border-box;margin:8px 15px 0px 15px;cursor:pointer;}.css-hhzar2{-webkit-transition:-webkit-transform ease 0.5s;-webkit-transition:transform ease 0.5s;transition:transform ease 0.5s;}.css-t54hv4{-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-1r2j9qz{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-e1ipqs{font-size:1rem;line-height:1.5rem;padding:0px 30px 0px 0px;}.css-e1ipqs a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;}.css-e1ipqs a:hover{-webkit-text-decoration:none;text-decoration:none;}.css-1o76pdf{visibility:show;height:100%;padding-bottom:20px;}.css-1sw9s96{visibility:hidden;height:0px;}#masthead-bar-one{display:none;}#masthead-bar-one{display:none;}.css-1cz6wm{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;font-family:’nyt-franklin’,arial,helvetica,sans-serif;text-align:left;}@media (min-width:740px){.css-1cz6wm{padding:20px;width:100%;}}.css-1cz6wm:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1cz6wm{border:none;padding:20px 0 0;border-top:1px solid #121212;}Frequently Asked Questions About the New Stimulus PackageThe stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more. Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read moreThis credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.Larry Summers, Treasury secretary to President Clinton and a top adviser to President Obama, kicked off the overheating debate with an op-ed in The Washington Post. He says an effort by the Fed to rein in overheating would be unlikely to be painless.“We have an experience like most of the recessions prior to 1990, when expansions were murdered by the Fed with inflation control as the motive,” he said, adding: “In the past it has proven impossible to generate a soft landing. I can’t think of a time when we have experienced a big downshift without having a recession.”He now assigns roughly equal odds to three possibilities: that everything goes according to plan, with inflation returning to normal after a one-time surge; that a cycle of ever-rising inflation develops; or that the Fed ultimately causes a steep downturn to prevent that inflationary cycle.So given that the real risk is not so much inflation in 2021, but what happens beyond the immediate future, how would we know it?Greg Mankiw, a Harvard economist who has warned of overheating, said there would be an “ongoing overheating problem” only if consumer prices were rising by more than 3 percent a year and bond prices were to shift in ways that suggested investors expected 3 percent or higher annual inflation for the next five years.Michael Strain of the American Enterprise Institute also emphasized these inflation “break-evens,” which capture bond investors’ views of future inflation based on the gap between inflation-protected and regular securities. Like Mr. Mankiw, he said that break-evens suggesting 3 percent or higher annual inflation over the next five years would be worrying, as would 2.5 percent or higher inflation expected for the period five to 10 years from now.Another place to look for evidence of overheating will be whether inflation merely rises or keeps accelerating.If the overheating warnings are correct, “it should start accelerating,” said Austan Goolsbee, an economist at the University of Chicago who has been sharply critical of the overheating thesis. “It should be 3, then 4, then 5 percent and so on. Basically they are predicting a 1970s repeat, so just go look at how inflation accelerated in the 1970s.”How will Americans interpret price rises during the post-pandemic boom? Might it jolt them out of the low-inflation psychology that has prevailed for nearly four decades, making businesses more confident about raising prices and workers faster to demand raises?The answer will determine whether the years ahead represent a pleasant warming trend or a red-hot caldron that leaves everybody burned. More

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    Powell Downplays Inflation Risks as Yellen Foreshadows Future Spending

    by

    The nation’s two most powerful economic policy officials testified together for the first time, reviewing the state of the economic recovery.The economy is healing, the nation’s top two economic officials told lawmakers on Tuesday, but workers and businesses will need continued government support to rebound from the pandemic — and one of the officials, Jerome H. Powell, the Federal Reserve chair, batted back concerns that vigorous policy help could stoke inflation.Mr. Powell testified Tuesday before the House Financial Services committee alongside Janet L. Yellen, his predecessor at the Fed and now the Treasury secretary, in their first side-by-side appearance in their current roles. In hopes of fueling a rapid rebound in spending and hiring, the government has been spending aggressively and the Fed is keeping borrowing costs at rock bottom.That all-in approach has helped to avert the most dire potential economic outcomes, Mr. Powell told lawmakers, and it has not created grave inflation risks in the process.Asked whether President Biden’s recently passed $1.9 trillion spending package to combat the virus could cause prices to shoot higher — especially as the administration eyes plans to spend as much as $3 trillion more on an infrastructure package — Mr. Powell said the Fed did not fear a jump in inflation.“We do expect that inflation will move up over the course of this year,” he said, adding that some of the rise would be procedural as low readings from March and April of last year dropped out of the data, and part of it might be driven by a recovery in demand.“Our best view is that the effect on inflation will be neither particularly large nor persistent,” he said. And if it does pick up in a more concerning way, “we have the tools to deal with that,” he added.Ms. Yellen faced questions about President Biden’s economic relief legislation, including Treasury’s role in putting it into action, as well as the administration’s plans to propose another big spending package on infrastructure, which could be financed in part by tax increases.She was pressed by Republican lawmakers about how higher taxes would affect consumers and small businesses. “I think a package that consists of investments in people, investments in infrastructure, will help to create good jobs in the American economy,” Ms. Yellen replied, “and changes in the tax structure will help to pay for those programs.”And she argued that tax increases would be necessary to back up the package.“We do need to raise revenues in a fair way to support the spending that this economy needs to be competitive and productive,” she said.Ms. Yellen’s Treasury is in charge of executing Mr. Biden’s $1.9 trillion economic relief legislation, and has been racing to distribute $1,400 checks to millions of Americans. That is posing a test for Ms. Yellen’s team, which is not yet fully in place.Ms. Yellen pushed hard for a robust fiscal relief package. In her opening statement, she described the rescue legislation as precisely what the economy needed.“With the passage of the rescue plan, I am confident that people will reach the other side of this pandemic with the foundations of their lives intact,” Ms. Yellen said. “And I believe they will be met there by a growing economy. In fact, I think we may see a return to full employment next year.”Mr. Powell declined to weigh in on the new infrastructure idea, but he did say that the government’s broad response to the coronavirus pandemic had helped to keep a worst-case economic disaster from playing out..css-yoay6m{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}@media (min-width:740px){.css-yoay6m{font-size:1.25rem;line-height:1.4375rem;}}.css-1dg6kl4{margin-top:5px;margin-bottom:15px;}.css-k59gj9{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;width:100%;}.css-1e2usoh{font-family:inherit;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;border-top:1px solid #ccc;padding:10px 0px 10px 0px;background-color:#fff;}.css-1jz6h6z{font-family:inherit;font-weight:bold;font-size:1rem;line-height:1.5rem;text-align:left;}.css-1t412wb{box-sizing:border-box;margin:8px 15px 0px 15px;cursor:pointer;}.css-hhzar2{-webkit-transition:-webkit-transform ease 0.5s;-webkit-transition:transform ease 0.5s;transition:transform ease 0.5s;}.css-t54hv4{-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-1r2j9qz{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-e1ipqs{font-size:1rem;line-height:1.5rem;padding:0px 30px 0px 0px;}.css-e1ipqs a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;}.css-e1ipqs a:hover{-webkit-text-decoration:none;text-decoration:none;}.css-1o76pdf{visibility:show;height:100%;padding-bottom:20px;}.css-1sw9s96{visibility:hidden;height:0px;}#masthead-bar-one{display:none;}#masthead-bar-one{display:none;}.css-1cz6wm{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;font-family:’nyt-franklin’,arial,helvetica,sans-serif;text-align:left;}@media (min-width:740px){.css-1cz6wm{padding:20px;width:100%;}}.css-1cz6wm:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1cz6wm{border:none;padding:20px 0 0;border-top:1px solid #121212;}Frequently Asked Questions About the New Stimulus PackageThe stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more. Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read moreThis credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.“While the economic fallout has been real and widespread, the worst was avoided by swift and vigorous action,” he said.Mr. Powell and Ms. Yellen faced a volley of questions on how financial regulators should deal with climate change risks. Republicans have expressed concern that the Fed’s growing attention to climate-related issues in its role as a bank overseer could end up making it harder or more expensive for carbon-heavy companies to get loans.“It’s really very early days in trying to understand what all of this means,” Mr. Powell said, noting that many large banks and large industrial companies were already thinking about and beginning to disclose how climate might affect them over time. “We have a job,” he said, “which is to ensure that the institutions we regulate are resilient to the risks that they’re running.”Separately on Tuesday, Lael Brainard, an influential Fed governor, announced that the Fed was establishing a Financial Stability Climate Committee “to identify, assess and address” climate-related risks to financial stability.The new body will approach its task in a way that “considers the potential for complex interactions across the financial system,” Ms. Brainard said, rather than just the risks to individual companies.That’s the kind of oversight some lawmakers fear.“Linking hypothetical climate scenarios to risks to the entire financial system seems to me highly speculative,” Representative Andy Barr, a Republican from Kentucky, told Mr. Powell and Ms. Yellen during the Tuesday hearing. 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    Biden Administration Faces Legal Fight Over State Aid Restrictions on Tax Cuts

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    The litigation came amid growing pushback from Republican lawmakers and state officials to a provision in the relief package that the Treasury Department said was constitutional.WASHINGTON — State backlash against a restriction in the $1.9 trillion economic relief legislation that prohibits local governments from using aid money to cut taxes emerged as the Biden administration’s first major legal battle on Wednesday, as Ohio sued to block the provision and other states considered similar action.The litigation came amid growing pushback from Republican lawmakers and state officials, who say that the strings attached to the Covid relief money are a violation of state sovereignty and that imposing tax cut restrictions is an infringement on a state’s right to set its own fiscal policies.On Tuesday, 21 Republican attorneys general wrote a letter to Treasury Secretary Janet L. Yellen seeking clarity on the portion of the law that prevents them from using the federal funds “to either directly or indirectly offset a reduction in the net tax revenue” resulting from state tax cuts.The attorneys general called the provision “the greatest attempted invasion of state sovereignty by Congress in the history of our Republic.”But the Biden administration showed no signs of backing down, saying on Wednesday that the restriction on how states can use their federal funds is constitutional and that those governments should not use stimulus money meant to combat the coronavirus crisis to subsidize tax cuts.The fight could slow the rollout of more than $200 billion in relief funds that states are expected to receive to help cover Covid-related costs, including money for schools and infrastructure investments.States, which are expected to share $220 billion worth of stimulus funds, are anxiously awaiting guidance about whether the restrictions apply to the use of federal dollars to offset new tax cuts, or if it blocks them from cutting taxes for any reason, even if the cuts were in the works before the law passed.In a court filing on Wednesday, Dave Yost, Ohio’s attorney general, sought a preliminary injunction that would bar the federal government’s ability to enforce what he described as the “tax mandate.”“The federal government should be encouraging states to innovate and grow business, not holding vital relief funding hostage to its preferred pro-tax policies,” Mr. Yost, a Republican, said in a statement.Ohio is expected to receive $5.5 billion in federal relief funds. Mr. Yost said that states should not have to choose between accepting the money and maintaining their rights to cut taxes.But the Treasury Department said on Wednesday that if a state that took relief money cuts taxes, that state must repay the amount of lost revenue from those cuts to the federal government.“It is well established that Congress may establish reasonable conditions on how states should use federal funding that the states are provided,” said Alexandra LaManna, a Treasury spokeswoman. “Those sorts of reasonable funding conditions are used all the time — and they are constitutional.”She added that the new law “provided funds to help states manage the economic consequences of Covid-19, and gave states flexibility to use that money for pandemic relief and infrastructure investments.”.css-yoay6m{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}@media (min-width:740px){.css-yoay6m{font-size:1.25rem;line-height:1.4375rem;}}.css-1dg6kl4{margin-top:5px;margin-bottom:15px;}.css-k59gj9{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;width:100%;}.css-1e2usoh{font-family:inherit;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;border-top:1px solid #ccc;padding:10px 0px 10px 0px;background-color:#fff;}.css-1jz6h6z{font-family:inherit;font-weight:bold;font-size:1rem;line-height:1.5rem;text-align:left;}.css-1t412wb{box-sizing:border-box;margin:8px 15px 0px 15px;cursor:pointer;}.css-hhzar2{-webkit-transition:-webkit-transform ease 0.5s;-webkit-transition:transform ease 0.5s;transition:transform ease 0.5s;}.css-t54hv4{-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-1r2j9qz{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-e1ipqs{font-size:1rem;line-height:1.5rem;padding:0px 30px 0px 0px;}.css-e1ipqs a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;}.css-e1ipqs a:hover{-webkit-text-decoration:none;text-decoration:none;}.css-1o76pdf{visibility:show;height:100%;padding-bottom:20px;}.css-1sw9s96{visibility:hidden;height:0px;}#masthead-bar-one{display:none;}#masthead-bar-one{display:none;}.css-1cz6wm{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;font-family:’nyt-franklin’,arial,helvetica,sans-serif;text-align:left;}@media (min-width:740px){.css-1cz6wm{padding:20px;width:100%;}}.css-1cz6wm:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1cz6wm{border:none;padding:20px 0 0;border-top:1px solid #121212;}Frequently Asked Questions About the New Stimulus PackageThe stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more. Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read moreThis credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.The Treasury Department rejected the idea that the provision, which was added to the relief legislation at the last minute, was prohibiting states from cutting taxes. States are free to decline the federal funds, or they can repay the money if they are in fiscal shape to cut taxes.“The law does not say that states cannot cut taxes at all, and it does not say that if a state cut taxes, it must pay back all of the federal funding it received,” Ms. LaManna said. “It simply instructed them not to use that money to offset net revenues lost if the state chooses to cut taxes. So if a state does cut taxes without replacing that revenue in some other way, then the state must pay back to the federal government pandemic relief funds up to the amount of the lost revenue.”The amount of aid that a state will receive is tied to its jobless rate, and there are strict requirements to ensure that the money is used for purposes related to the coronavirus or to offset revenues that have been lost because of the health crisis. The Treasury Department plans to closely scrutinize how the money is spent.In their letter to Ms. Yellen, the attorneys general said that if they did not receive a formal response by March 23, they would take “appropriate additional action.”More lawsuits could soon follow. Attorney General Patrick Morrisey of West Virginia said such action would include seeking a court ruling “that the unprecedented and micromanaging provision violates the U.S. Constitution.”At a briefing with reporters on Wednesday, Mr. Morrisey said he had been working on a draft of a complaint. He has been talking to other states about the mechanics of the legal challenge and where it should be filed.“There are huge legal and constitutional problems with this provision,” Mr. Morrisey said. “This may be one of the greatest attempted invasions of state sovereignty by Congress in the history of our Republic.” More

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    Republican Attorneys General Press Biden Over Restrictions on State Aid in Stimulus Plan

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    In a letter, 21 officials asked the Treasury secretary, Janet L. Yellen, to clarify how expansively her department would interpret a portion of the law.WASHINGTON — Twenty-one Republican attorneys general pressed the Biden administration on Tuesday to clarify a provision in the $1.9 trillion economic aid package that the president signed into law last week, warning that its restrictions on state efforts to cut taxes could be “the greatest attempted invasion of state sovereignty by Congress in the history of our Republic.”The seven-page letter was signed by a host of Republican officials, including the attorneys general of Texas, Arizona, Georgia and Utah. They take issue with a restriction that lawmakers included in a $350 billion relief effort for state, local and tribal governments that prevents them from using the federal funds “to either directly or indirectly offset a reduction in the net tax revenue” as a result of tax cuts. These governments have suffered revenue hits and laid off more than a million public employees during the coronavirus pandemic.The law requires repayment to the federal government of any money that violates those conditions.In their letter, the Republican officials asked Janet L. Yellen, the Treasury secretary, to clarify how expansively her department would interpret that portion of the law. Does it simply prohibit states from using the federal dollars to offset new tax cuts, or instead prohibit them from cutting taxes for any reason, even if those cuts were in the works before the law passed? The officials said the broader restriction would be damaging and most likely unconstitutional.“This language could be read to deny states the ability to cut taxes in any manner whatsoever — even if they would have provided such tax relief with or without the prospect of Covid-19 relief funds,” the attorneys general wrote. “Absent a more sensible interpretation from your department, this provision would amount to an unprecedented and unconstitutional intrusion on the separate sovereignty of the states through federal usurpation of essentially one half of the state’s fiscal ledgers” — their ability to collect revenues.Oklahoma, for example, has already passed an income-tax cut through its House of Representatives, including an expansion of the state’s earned-income tax credit that is meant to help low-income workers, Mike Hunter, the state’s attorney general, said in a statement on Tuesday. “But,” he warned, “the federal stimulus bill might prohibit Oklahoma from providing this economic relief without losing its share of federal funding.”A White House spokesman declined on Tuesday evening to comment on the letter. A Treasury Department spokesman did not immediately return a request for comment.Republican lawmakers in Washington and around the country previously raised concerns over the provision.“We were planning on giving — reducing the sales tax on used cars, that is low-income and middle-income,” Gov. Asa Hutchinson of Arkansas said on the CBS program “Face the Nation” on Sunday. “And now we’re worried about whether that’s going to be prohibited under this bill. The language seems to indicate it is.” More