American Rescue Plan (2021)

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    Democrats Roll Out $3.5 Trillion Budget to Fulfill Biden’s Broad Agenda

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    “We’re going to get a lot done,” President Biden said, as Senate Democrats began drafting the details on a social and environmental bill that could yield transformative change.WASHINGTON — President Biden and congressional Democrats vowed on Wednesday to push through a $3.5 trillion budget blueprint to vastly expand social and environmental programs by extending the reach of education and health care, taxing the rich and tackling the warming of the planet.The legislation is still far from reality, but the details that top Democrats have coalesced around are far-reaching. Prekindergarten would be universal for all 3- and 4-year-olds, two years of community college would be free, utilities would be required to produce a set amount of clean energy, and prescription drug prices would be lowered. Medicare benefits would be expanded, and green cards would be extended to some undocumented immigrants.At a closed-door luncheon in the Capitol, Mr. Biden rallied Democrats and the independents aligned with them to embrace the plan, which would require every single one of their votes to move forward over united Republican opposition. But crucial moderate lawmakers had yet to say whether they would accept the proposal, with a majority of policy details left to resolve.Mr. Biden’s message to the senators on Wednesday, said Senator Richard Blumenthal of Connecticut, was “be unified, strong, big and courageous.”Senate Democratic leaders have said they aim to pass both the budget blueprint and a narrower, bipartisan infrastructure plan that is still being written before the chamber leaves for the August recess — a complex and politically tricky task in a 50-50 Senate. The narrowly divided House would also have to pass the budget blueprint before both chambers begin tackling the detailed legislation.Speaker Nancy Pelosi, who must ultimately get the package through the House, embraced the deal, telling Democrats in a letter on Wednesday, “This budget agreement is a victory for the American people, making historic, once-in-a-generation progress for families across the nation.”The outline includes large swaths of Mr. Biden’s $4 trillion economic agenda. It wraps in every major category from his American Families Plan, including investments in child care, paid leave and education, and expanded tax credits that this week will begin providing a monthly check to most families with children.“I think we’re going to get a lot done,” Mr. Biden told reporters as he left his first in-person lunch with the Democratic caucus as president.Nodding to budget constraints, party leaders conceded that many of the programs included in their plan — including the tax credits — could be temporary, leaving a future Congress to decide whether to extend them further.The proposal also includes some measures that go beyond what Mr. Biden has called for, like expanding Medicare to cover dental, vision and hearing benefits. Democratic leaders left it to the Senate Finance Committee to decide whether to include reducing the eligibility age for Medicare to 60, a priority of Senator Bernie Sanders of Vermont, the Budget Committee chairman.The resolution would also create what would effectively be a tax on imports from countries with high levels of greenhouse gas emissions. That could violate Mr. Biden’s pledge not to raise taxes on Americans earning less than $400,000 a year if the tax is imposed on products that typical consumers buy, such as electronics from China.Democrats on Mr. Sanders’s committee must produce a budget resolution in the coming days that includes so-called reconciliation instructions to other Senate committees, which in turn will draft legislation detailing how the $3.5 trillion would be spent — and how taxes would be raised to pay for it.That would pave the way for Democrats to produce a reconciliation bill this fall that would be shielded from a filibuster, allowing them to circumvent Republican opposition but requiring all 50 of their members — and a majority in the narrowly divided House — to pass it.“In some cases, it doesn’t provide all the funding that I would like to do right now,” Mr. Sanders said. “But given the fact that we have 50 members, and that compromises have got to be made, I think this is a very, very significant step forward.”He added: “If you’re asking me at the end of the day, do I think we’re going to pass this? I do.”A neighborhood in Austin, Texas, where many homes have solar panels. The blueprint of the legislation includes clean energy provisions and other social programs.Tamir Kalifa for The New York TimesAt the private lunch, Senator Chuck Schumer of New York, the majority leader, outlined the proposal and the directives it would lay out.Democrats included the creation of a civilian climate corps to add jobs to address climate change and conservation, and to provide for child care, home care and housing investments. They are also expected to try to include a path to citizenship for some undocumented immigrants and address labor protections.Democrats would also extend expanded subsidies for Americans buying health insurance through the Affordable Care Act that were included in the broad pandemic aid law that Mr. Biden signed this year.Huge investments would go to renewable energy and a transformed electrical system to move the U.S. economy away from oil, natural gas and coal to wind, solar and other renewable sources. The budget blueprint is to include a clean energy standard, which would mandate the production of electricity driven by renewable sources and bolster tax incentives for the purchase of electric cars and trucks.To fully finance the bill, it is expected to include higher taxes on overseas corporate activities to alleviate incentives for sending profits overseas, higher capital gains rates for the wealthy, higher taxes on large inheritances and stronger tax law enforcement.Senator Ron Wyden of Oregon, the chairman of the Finance Committee, said on Wednesday that he was also preparing to overhaul a deduction for companies not organized as corporations, like many small businesses and law firms — created by the 2017 Republican tax law — in order to cut taxes from small businesses but raise additional revenues from wealthy business owners.Specific provisions will have to pass muster with the strict budgetary rules that govern the reconciliation process, which require that provisions affect spending and taxation, not just lay out new policies. The Senate parliamentarian could force Democrats to overhaul or outright jettison the clean energy standard, the provision that climate activists and many scientists most desire, as well as the immigration and labor provisions, among others.Moderate Democrats, who had balked at a progressive push to spend as much as $6 trillion on Mr. Biden’s entire economic agenda, largely declined to weigh in on the blueprint until they saw detailed legislation, saying they needed to evaluate more than an overall spending number.“We’ve got to get more meat on the bones for me,” Senator Jon Tester, Democrat of Montana, told reporters, though he added that he would ultimately vote for the budget blueprint. “I’ve got to get more information on what’s in it.”The size of the package could be shaped by the success or failure of the bipartisan infrastructure plan, which would devote nearly $600 billion in new spending to roads, bridges, tunnels, transit and broadband. The group of lawmakers negotiating that package has yet to release legislative text as they haggle over the details of how to structure and pay for the plan.“I want to be able to tell people in South Carolina: I’m for this, I’m not for that,” said Senator Lindsey Graham of South Carolina, the top Republican on the Senate Budget Committee.Stefani Reynolds for The New York TimesIf Republicans cannot deliver enough votes to move the package past a filibuster, Democrats could simply fold physical infrastructure spending into their reconciliation plan and take away any chance for Republicans to shape it, said Senator Rob Portman, Republican of Ohio and one of the negotiators of the bipartisan bill.“If we don’t pass infrastructure, they’re going to put even more infrastructure in than we have and worse policies,” said Mr. Portman, who fielded skepticism from his colleagues at a private Republican lunch on Tuesday. Some Republicans had hoped that a bipartisan accord on physical infrastructure projects would siphon momentum from a multitrillion-dollar reconciliation package. Instead, it appears very much on track, and it may intensify the pressure on Republicans to come to terms on a bipartisan package, even if they fiercely oppose the rest of the Democrats’ agenda.“I want to be able to tell people in South Carolina: I’m for this, I’m not for that,” said Senator Lindsey Graham of South Carolina, the top Republican on the Budget Committee and a peripheral presence in the bipartisan talks.He added that the lengthy floor debate over the blueprint would allow Republicans to “ferociously attack it, to have amendments that draw the distinctions between the parties, to scream to high heaven that this is not infrastructure.”Senator Joe Manchin III of West Virginia, a moderate Democrat, said he looked “forward to reviewing this agreement” but was also interested in how the programs would be financed.Sarahbeth Maney/The New York TimesSenator Joe Manchin III of West Virginia, the centrist Democrat whose support might be determinative, told reporters after lunch with the president that he had concerns about some of the climate language. But he did not rule out supporting the budget proposal or the subsequent package. Senator Kyrsten Sinema, Democrat of Arizona and another key moderate, also hung back on Wednesday.Still, the $3.5 trillion package had plenty in it to appeal to senior Democrats who were eager to use it to advance their longtime priorities. For Senator Patty Murray of Washington, the chairwoman of the Health, Education, Labor and Pensions Committee, it was an extension of a more generous child tax credit, as well as subsidies for child care, prekindergarten and paid family leave.For Mr. Sanders, it was the Medicare and climate provisions.“Finally, we are going to have America in the position of leading the world in combating climate change,” he said.Mr. Tester said the need for school construction was so high that trillions could go to that alone.“The plan is a strong first step,” said Senator Elizabeth Warren, Democrat of Massachusetts, adding that she was focused on funding universal child care. “We’re slicing up the money now to find the right ways to make that happen.”The budget measure is expected to include language prohibiting tax increases on small businesses, farms and people making less than $400,000, fulfilling a promise Mr. Biden has maintained throughout the negotiations. Asked on Wednesday whether the proposed carbon tariff would violate that pledge, Mr. Wyden replied, “We’ve not heard that argument.”Lisa Friedman More

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    Child Tax Credit Monthly Payments to Begin Soon

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    The Biden administration will send up to $300 per child a month to most American families thanks to a temporary increase in the child tax credit that advocates hope to extend.WASHINGTON — If all goes as planned, the Treasury Department will begin making a series of monthly payments in coming days to families with children, setting a milestone in social policy and intensifying a debate over whether to make the subsidies a permanent part of the American safety net.With all but the most affluent families eligible to receive up to $300 a month per child, the United States will join many other rich countries that provide a guaranteed income for children, a goal that has long animated progressives. Experts estimate the payments will cut child poverty by nearly half, an achievement with no precedent.But the program, created as part of the stimulus bill that Democrats passed over unified Republican opposition in March, expires in a year, and the rollout could help or hinder President Biden’s pledge to extend it.Immediate challenges loom. The government is uncertain how to get the payments to millions of hard-to-reach families, a problem that could undermine its poverty-fighting goals. Opponents of the effort will be watching for delivery glitches, examples of waste or signs that the money erodes the desire of some parents to work.While the government has increased many aid programs during the coronavirus pandemic, supporters say the payments from an expanded Child Tax Credit, at a one-year cost of about $105 billion, are unique in their potential to stabilize both poor and middle-class families.“It’s the most transformative policy coming out of Washington since the days of F.D.R.,” said Senator Cory Booker, Democrat of New Jersey. “America is dramatically behind its industrial peers in investing in our children. We have some of the highest child poverty rates, but even families that are not poor are struggling, as the cost of raising children goes higher and higher.”Among America’s 74 million children, nearly nine in 10 will qualify for the new monthly payments — up to $250 a child, or $300 for those under six — which are scheduled to start on Thursday. Those payments, most of which will be sent to bank accounts through direct deposit, will total half of the year’s subsidy, with the rest to come as a tax refund next year.Mr. Biden has proposed a four-year extension in a broader package he hopes to pass this fall, and congressional Democrats have vowed to make the program permanent. Like much of Mr. Biden’s agenda, the program’s fate may depend on whether Democrats can unite around the bigger package and advance it through the evenly divided Senate.The unconditional payments — what critics call “welfare” — break with a quarter century of policy. Since President Bill Clinton signed a 1996 bill to “end welfare,” aid has gone almost entirely to parents who work. Senator Marco Rubio, Republican of Florida, recently wrote that the new payments, with “no work required,” would resurrect a “failed welfare system,” and provide “free money” for criminals and addicts.Senator Marco Rubio, Republican of Florida, is among those who argue the new payments will erode the desire of some parents to work. Erin Scott for The New York TimesBut compared to past aid debates, opposition has so far been muted. A few conservatives support children’s subsidies, which might boost falling birthrates and allow more parents to raise children full-time. Senator Mitt Romney, Republican of Utah, has proposed a larger child benefit, though he would finance it by cutting other programs.With Congress requiring payments to start just four months after the bill’s passage, the administration has scrambled to spread the word and assemble payment rosters.Families that filed recent tax returns or received stimulus checks should get paid automatically. (Single parents with incomes up to $112,500 and married couples with incomes up to $150,000 are eligible for the full benefit.) But analysts say four to eight million low-income children may be missing from the lists, and drives are underway to get their parents to register online.“Wherever you run into people — perfect strangers — just go on up and introduce yourself and tell them about the Child Tax Credit,” Vice President Kamala Harris said last month on what the White House called “Child Tax Credit Awareness Day.”Among the needy, the program is eliciting a mixture of excitement, confusion and disbelief. Fresh EBT, a phone app for people who receive food stamps, found that 90 percent of its users knew of the benefit, but few understand how it works.“Half say, ‘I’m really, really ready to get it,’’’ said Stacy Taylor, the head of policy and partnerships at Propel, the app’s creator. “The others are a mix of ‘I’m worried I haven’t taken the right steps’ or ‘I’m not sure I really believe it’s true.’”Few places evoke need more than Lake Providence, La., a hamlet along the Mississippi River where roughly three-quarters of the children are poor, including those of Tammy Wilson, 50, a jobless nursing aide.The $750 a month she should receive for three children will more than double a monthly income that consists only of food stamps and leaves her relying on a boyfriend. “I think it’s a great idea,” she said. “There’s no jobs here.”While the money will help with rent, Ms. Wilson said, the biggest benefit would be the ability to send her children to activities like camps and school trips.“Kids get to bullying, talking down on them — saying ‘Oh your mama don’t have money,’” she said. “They feel like it’s their fault.”Families receiving groceries at a food pantry in Queens. Experts estimate that the monthly payments will cut child poverty by nearly half.Shannon Stapleton/ReutersBut in West Monroe, a 90-minute drive away, Levi Sullivan, another low-income parent, described the program as wasteful and counterproductive. Mr. Sullivan, a pipeline worker, has been jobless for more than a year but argued the payments would increase the national debt and reward indolence.“I’m a Christian believer — I rely on God more than I rely on the government,” he said.With four children, Mr. Sullivan, who has gotten by on unemployment insurance, food stamps, and odd jobs, could collect $1,150 a month, but he is so skeptical of the program he went online to defer the payments and collect a lump sum next year. Otherwise, he fears that if he finds work he may have to pay the money back.“Government assistance is a form of slavery,” he said. “Some people do need it, but then again, there’s some people that all they’re doing is living off the system.”Progressives have sought a children’s income floor for at least a century. “No one can doubt that an adequate allowance should be granted for a mother who has children to care for,” wrote the economist and future Illinois senator Paul H. Douglas in 1925 as children’s benefits spread in Europe.Four decades later, the Ford Foundation sponsored a conference to promote the idea in the United States. The meeting’s organizer, Eveline M. Burns, lamented the “shocking extent of childhood poverty” but acknowledged strong political opposition to the payments.While hostility to unconditional cash aid peaked in the 1990s, multiple forces revived interest in children’s subsidies. Brain science showed the lasting impact of the formative years. Stagnant incomes brought worries about child-rearing costs into the middle class. More recently, racial protests have encouraged a broader look at social inequity.An existing program, the Child Tax Credit, did offer a children’s subsidy of up to $2,000 a child. But since it was only available to families with sufficient earnings, the poorest third of children failed to fully qualify. By removing that earnings requirement and raising the amount, Democrats temporarily converted a tax break into a children’s income guarantee.Analysts at Columbia University’s Center on Poverty and Social Policy say the new benefits will cut child poverty by 45 percent, a reduction about four times greater than ever achieved in a single year.“Even if it only happens for a year, that’s a big deal,” said Irwin Garfinkel, a professor at the Columbia School of Social Work. “If it becomes permanent, it’s of equal importance to the Social Security Act — it’s that big.”Opponents warn that by aiding families that do not work, the policy reverses decades of success. Child poverty had fallen to a record low before the pandemic (about 12 percent in 2019), a drop of more than a third since 1990s.“I’m surprised there hasn’t been more pushback from other conservatives,” said Scott Winship of the conservative American Enterprise Institute, who argues that unconditional aid can cause the poor long-term harm by reducing the incentive to work and marry. Research suggests that framing the payments as a benefit for children leads to parents spending it on things like diapers and school supplies rather than on themselves.Jenn Ackerman for The New York TimesGetting the money to all eligible children may prove harder than it sounds. Some American children live with undocumented parents afraid to seek the aid. Others may live with relatives in unstable or shifting care.Dozens of groups are trying to promote the program, including the Children’s Defense Fund, United Way and Common Sense Media, but many eligible families have already failed to collect stimulus checks, underscoring how difficult they are to reach. The legislation contained little money that could be used for outreach, leaving many groups trying to raise private donations to support their efforts.The Rev. Starsky Wilson, president of the Children’s Defense Fund, praised the Biden administration for creating an online enrollment portal but warned, “we really need to be knocking on doors.”Gene Sperling, the White House official overseeing the payments, said that even with some families hard to reach, deep cuts in poverty were assured.“While we want to do everything possible to reach any missing children, the most dramatic impact on child poverty will happen automatically,” because the program will reach about 26 million children whose families are known but earned too little to fully benefit from the previous credit. “That will be huge.”By delivering monthly payments, the program seeks to address the income swings that poor families frequently suffer. One unknown is how families will spend the money, with critics predicting waste and supporters saying parents know their children’s needs.When Fresh EBT asked users about their spending plans, the answers differed from those about the stimulus checks. “We saw more responses specifically related to kids — school clothes, school supplies, a toddler bed,” Ms. Taylor said. “It tells me the framing of the benefit matters.”There is evidence for that theory. When Britain renamed its “family allowance” a “child benefit” in the 1970s and paid mothers instead of fathers, families spent less on tobacco and men’s clothing and more on children’s clothing, pocket money, and toys. “Calling something a child benefit frames the way families spend the money,” said Jane Waldfogel, a Columbia professor who studied the British program.While the payments will greatly reduce poverty, most beneficiaries are not poor. Jennifer Werner and her husband had a household income of about $75,000 before she quit her job as a property manager in Las Vegas two years ago to care for her first child. Since then, she has used savings to extend her time as a stay-at-home mother.Ms. Werner, 45, supports the one-year benefit but wants to see the results before deciding whether it should last. “When you have a child you realize they’re expensive — diapers, wipes, extra food,” she said. But she added “I don’t know where all that money’s coming from.”She hopes the country can be fair both to taxpayers and to children whose parents work too hard to offer sufficient attention. “If the benefit helps parents nurture their kids, that would be a wonderful thing,” she said. More

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    States and Cities Scramble to Spend $350 Billion Stimulus

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    The Biden administration is betting on the funds to keep the recovery humming, but Republicans say the money is being wasted.WASHINGTON — When Steve Adler, the mayor of Austin, heard the Biden administration planned to give billions of dollars to states and localities in the $1.9 trillion pandemic aid package, he knew exactly what he wanted to do with his cut.The remarkable growth of the Texas capital, fueled by a technology boom, has long been shadowed by a rise in homelessness, so local officials had already cobbled together $200 million for a program to help Austin’s 3,200 homeless people. When the relief package passed this spring, the city government quickly steered 40 percent of its take, about $100 million, to fortify that effort.“The inclination is to spread money around like peanut butter, so that you help out a lot of people who need relief,” Mr. Adler, a Democrat, said in an interview. “But nobody really gets all that they need when you do that.” The mayor of Austin, Steve Adler, steered $100 million of pandemic relief funding to initiatives that help the homeless population.Ilana Panich-Linsman for The New York TimesThe stimulus package that President Biden signed into law in March was intended to stabilize state and city finances drained by the coronavirus crisis, providing $350 billion to alleviate the pandemic’s effect, with few restrictions on how the money could be used.Three months after its passage, cash is starting to flow — $194 billion so far, according to the Treasury Department — and officials are devoting funds to a range of efforts, including keeping public service workers on the payroll, helping the fishing industry, improving broadband access and aiding the homeless.“It’s not like all places are rushing out to do the most aspirational things, since the first thing they need to do is replace lost revenue,” said Mark Muro, a senior fellow with the Brookings Institution, a nonpartisan Washington think tank. “But there is much more flexibility in this program than in previous stimulus packages, so there is more potential for creativity.”The local decisions are taking on greater national urgency as the Biden administration negotiates with Republicans in Congress over a bipartisan infrastructure package. Some Republican lawmakers want money from previous relief packages to be repurposed to pay for infrastructure, arguing that many states are in far better financial shape than expected and the money should be put to better use.The administration, sensitive to those concerns, has begun bending the program’s rules to allow the money to be spent even more broadly. In May, the Treasury Department told states they could use their funding to pay for lotteries intended to encourage vaccinations. In June, President Biden prodded local governments to consider using the cash to address the recent rise in violent crime, which his aides regard as a serious political hazard heading into the 2022 midterm elections.For the most part, local officials have been focused on undoing the damage of the past year and a half.Maine officials are looking to spend $16 billion to bolster the fishing industry, which is facing a combination of lobster shortages and hungry consumers, flush with money after more than a year in lockdown. Alaska is already pouring cash into its fishing sector.In North Carolina, the concerns are more terrestrial: The governor wants to direct $45 million in relief funds to the motor sports sector, which took a hit when the pandemic halted NASCAR.Maine officials are looking to spend $16 billion to bolster the fishing industry, which is facing a combination of lobster shortages and hungry consumers, flush with money after more than a year in lockdown.Greta Rybus for The New York TimesIn conservative-leaning states like Wyoming that did not incur major budget deficits during the coronavirus, officials have been freed to spend much of their cash on infrastructure improvements, especially rural broadband.Places like Orange County, Calif., that poured significant funding into fighting the spread of the pandemic are using a lot of their money to pay for huge community vaccination campaigns. And the midsize cities that make up the county — Irvine, Garden Grove and Anaheim — are directing most of their $715 million to plug virus-ravaged budgets.Last week, New York City passed its largest budget ever, about $99 billion, bolstered by $14 billion in federal pandemic aid that will be used in nearly every facet of the city’s finances, like an infusion of cash needed to cover budget gaps and an array of new programs, including youth job initiatives, college scholarships and a $1 billion backup fund for health emergencies.Local officials, especially Democrats, have tried to leverage at least some of the windfall to address chronic social and economic problems that the coronavirus exacerbated.After a series of community meetings in Detroit, Mayor Mike Duggan and the City Council opted for a plan that divided the city’s $826 million payout roughly in half, with about $400 million going to recoup Covid-19 losses, and $426 million to an array of job-creation programs, grants for home repairs and funding to revitalize blighted neighborhoods.In Philadelphia, officials are considering using $18 million of the new aid to test a “universal basic income” pilot program to help poor people. That is among the uses specifically suggested in the administration’s guidance. Several other big cities, including Chicago, are considering similar plans.The Cherokee Nation, which is receiving $1.8 billion of the $20 billion set aside for tribal governments, is replicating the law’s signature initiative — direct cash payments to citizens — by sending $2,000 checks to around 400,000 members of the tribe in multiple states.The $350 billion program has led to legal battles, with officials in many Republican-led states fighting one of the few restrictions placed on use of the money, a prohibition against deploying it to subsidize tax cuts, and partisan clashes erupting over which projects should have been given priority.And the cash has spawned partisan conflict. Gov. Mark Gordon of Wyoming, a Republican, announced this month that the state would use only a fraction of the approximately $1 billion it was expected to receive on emergency expenditures this year, and would discuss how to use the rest.“These are dollars borrowed by Congress from many generations yet to come,” he said in a statement this spring.The idea of the federal government distributing such vast sums has been charged from the start. Republican lawmakers successfully blocked a large state and local package during the Trump administration, denouncing it as a “blue-state bailout” that helped fiscally-irresponsible local governments.Not a single Republican in either house of Congress voted for the bill. Yet the vast majority of officials from conservative states have welcomed the aid without much fuss. In general, Republican governors and agency officials have tilted toward financing economic development and infrastructure improvements, particularly for upgrading broadband in rural areas, rather than funding social programs.When the administration updates the guidance for the funding this summer, they are likely to loosen the restrictions on internet-related projects at the behest of Republican state officials, a senior White House official said.One of the most ambitious plans in the nation is being formulated by Indiana, a Republican-controlled state that is using $500 million of the stimulus money for projects aimed at stemming the decades-long exodus of workers from postindustrial towns and cities.“It’s huge — it’s found money — nobody thought it was going to be there,” said Luke Bosso, the chief of staff at the Indiana Economic Development Corporation, which has been working on the effort for years. Cleveland-Cliffs steel mill in Burns Harbor, Ind. Indiana is using its stimulus funds on projects aimed at stemming the exodus of workers from postindustrial towns and cities. Taylor Glascock for The New York TimesWhile lawmakers in Washington debate the scope of a new infrastructure bill this year, the package that passed in March already represents a major down payment for a variety of infrastructure projects.Christy McFarland, the research director of the National League of Cities, said that many cities across the country were preparing to put money into infrastructure projects that had been delayed by the pandemic, and investing in more affordable housing and spending on core needs such as water, sewer and broadband.However, she said she was also seeing creative ideas such as recurring payments to the poor and investments in remote work support emerge as cities look to expand their safety nets and modernize their work forces.“We’re also seeing communities that never recovered from the Great Recession, have an opportunity to think much bigger,” Ms. McFarland said. “They’re asking what they could do that would be transformational.”The slow pace of recovery from the last recession has been a driving force behind the White House’s push. Mr. Biden has been eager to avoid a mistake that hobbled the last recovery’s pace — underestimating the drag that faltering local governments would have on the national economy. Gene Sperling, a former Obama adviser now overseeing Mr. Biden’s pandemic relief efforts, said not providing help to local governments meant annual economic growth “of about 2 percent versus growth of 3 percent.”The effort also serves Mr. Biden’s political objectives by bypassing national Republicans to build trust with voters in rural counties, small towns and midsize cities in the Midwest and elsewhere.“Something like this creates a space for a White House to be talking to governors and mayors of both parties about the basic mechanisms of governing that just cuts through the politics,” Mr. Sperling said. “That’s a good thing.” More

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    June Jobs Report Delivers Good News and Big Questions for Washington

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    Payrolls surged and wages climbed, both positives for President Biden and the Federal Reserve. But stagnant labor market participation highlights a key risk.Employers are hiring and wages are rising but the number of people actively working or looking for jobs remains stagnant, a phenomenon that is making it difficult for the Federal Reserve and White House to determine how much the labor market has recovered and how long the U.S. economy will continue to need hefty support.Employers added 850,000 workers to payrolls in June, a strong number that was buttressed by rising wages as employers scramble to hire to meet surging customer demand. The report gives the Biden administration encouraging talking points, and the Fed a sign that the economy is making progress toward the central bank’s full employment goal.But the fact that workers aren’t rushing back to the job market injects a note of caution into an otherwise sunny outlook. The labor force participation rate, a measure of people working or looking for jobs, has barely budged in recent months and was unchanged at 61.6 percent in June. It remains sharply down from 63.3 percent before the crisis started.The labor force participation rate did not budge.Share of the working-age population who are in the labor force (employed, unemployed but looking for work or on temporary layoff) More

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    Fed Unity Cracks as Inflation Rises and Officials Debate Future

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    Federal Reserve officials are debating what to do as price risks loom, even as its leaders and the White House say today’s surge will most likely cool.Federal Reserve officials spoke with one voice throughout the pandemic downturn, promising that monetary policy would be set to full-stimulus mode until the crisis was well and truly behind America. Suddenly, they are less in sync.Central bankers are increasingly divided over how to think about and respond to emerging risks after months of rising asset values and faster-than-expected price increases. While their political counterparts in the White House have been more unified in maintaining that the recent jump in price gains will fade as the economy gets past a reopening burst, Washington as a whole is wrestling with how to approach policy at a moment of intense uncertainty.The Fed’s top officials, including Chair Jerome H. Powell, acknowledge that a lasting period of uncomfortably high inflation is a possibility. But they have said it is more likely that recent price increases, which have come as the economy reopens from its coronavirus slumber, will fade.Other officials, like James Bullard, president of the Federal Reserve Bank of St. Louis, have voiced more pointed concern that the pickup in prices might persist and have suggested that the Fed may need to slow its support for the economy more quickly as a result.Unwanted and persistent inflation seemed like a fringe possibility earlier this year, but it is becoming a central feature of economic policy debates as prices rise for used cars, airline tickets and restaurant meals. For the Fed, the risk that some of the current jump could last is helping to drive the discussion about how soon and how quickly officials should slow down their enormous government-backed bond-buying program — the first step in the central bank’s plan to reduce its emergency support for the economy.Fed officials have said for months that they want to achieve “substantial further progress” toward their goals of full employment and stable inflation before slowing the purchases, and they are just beginning to discuss a plan for that so-called taper. They are now wrestling with the reality that the nation is still missing 7.6 million jobs while the housing market is booming and prices have moved up faster than expected, prompting a range of views to surface in public and private.The bubbling debate reinforces that the central bank’s easy money policies won’t last forever, and sends a signal to markets that officials are closely attuned to inflationary pressures.“A pretty substantial part — or perhaps all — of the overshoot in inflation comes from categories that are directly affected by the reopening of the economy,” said Jerome Powell, the Fed chair.Al Drago/The New York Times“I see the debate and disagreement as the Fed at its best,” said Robert S. Kaplan, who is president of the Federal Reserve Bank of Dallas and is one of the people pushing for the Fed to soon begin to pull back support. “In a situation this complex and this dynamic, if I weren’t seeing debate and disagreement, and there were unanimity, it would make me nervous.”The central bank’s 18 policy officials roundly say that the economy’s path is extremely hard to predict as it reopens from a once-in-a-century pandemic. But how they think about inflation after a string of strong recent price reports — and how they feel the Fed should react — varies.Inflation has spiked because of statistical quirks, but also because consumer demand is outstripping supply as the economy reopens and families open their wallets for dinners out and long-delayed vacations. Bottlenecks that have held up computer chip production and home-building should eventually fade. Some prices that had previously shot up, like those for lumber, are already starting to moderate.But if the reopening weirdness lasts long enough, it could cause businesses and consumers to anticipate higher inflation permanently, and act accordingly. Should that happen, or if workers begin to negotiate higher wages to cover the pop in living costs, faster price gains could stick around.“A new risk is that inflation may surprise still further to the upside as the reopening process continues, beyond the level necessary to simply make up for past misses to the low side,” Mr. Bullard said in a presentation last week. The Fed aims for 2 percent inflation as an average goal over time, without specifying the time frame.Other Fed officials have said today’s price pressures are likely to ease with time, but have not sounded confident that they will entirely disappear.“These upward price pressures may ease as the bottlenecks are worked out, but it could take some time,” Michelle Bowman, one of the Fed’s Washington-based governors, said in a recent speech.The Fed’s top leadership has offered a less alarmed take on the price trajectory. Mr. Powell and John C. Williams, president of the Federal Reserve Bank of New York, have said it is possible that prices could stay higher, but they have also said there’s little evidence so far to suggest that they will.“A pretty substantial part — or perhaps all — of the overshoot in inflation comes from categories that are directly affected by the reopening of the economy,” Mr. Powell said during congressional testimony on June 22.Mr. Williams has said there is even a risk that inflation could slow. The one-off factors pushing up prices now, like a surge in car prices, could reverse once supply recovers, dragging down future price gains.“You could see inflation coming in lower than expected,” he said last week.Which take on inflation prevails — risk-focused, watchful, or less fretful — will have implications for the economy. Officials are beginning to talk about when and how to slow down their $120 billion in monthly bond-buying, which is split between $80 billion in Treasury securities and $40 billion in government-backed mortgage debt.The Fed has held a discussion about slowing bond-buying before, after the global financial crisis, but that came during the rebound from a deep but otherwise more standard downturn: Demand was weak and the labor market climbed slowly back. This time, conditions are much more volatile since the recession was an anomaly, driven by a pandemic instead of a financial or business shock.In the current setting, officials who are more worried about prices getting out of hand may feel more urgency to dial back their economic stimulus, which stokes demand.“This is a volatile environment; we’ve got upside inflation risk here,” Mr. Bullard said at a separate event last week. “Creating some optionality for the committee might be really useful here, and that will be part of the taper debate going forward.”Mr. Kaplan said he had been vocal about his preferences on when tapering should start during private Fed discussions, though publicly he will say only that he would prefer to start cutting policy support “sooner rather than later.”“I see the debate and disagreement as the Fed at its best,” said Robert S. Kaplan, a Fed official who is pushing to start easing support.Edgard Garrido/ReutersHe thinks moving more quickly to slow bond purchases would take a “risk management” approach to both price gains and asset market excess: reducing the chances of a bad outcome now, which might mean the Fed doesn’t have to raise interest rates as early down the road.Several officials, including Mr. Kaplan and Mr. Bullard, have said it might be wise for the Fed to slow its purchases of mortgage debt more rapidly than they slow bond-buying overall, concerned that the Fed’s buying might be contributing to a hot housing market.But even that conclusion isn’t uniform. Lael Brainard, a Fed governor, and Mary C. Daly, president of the Federal Reserve Bank of San Francisco, have suggested that the mortgage-backed purchases affect financial conditions as a whole — suggesting they may be less keen on cutting them back faster.The price outlook will also inform when the Fed first raises interest rates. The Fed has said that it wants to achieve 2 percent inflation on average over time and maximum employment before lifting borrowing costs away from rock bottom.Rate increases are not yet up for discussion, but Fed officials’ published forecasts show that the policy-setting committee is increasingly divided on when that liftoff will happen. While five expect rates to remain unchanged through late 2023, opinions are otherwise all over the place. Two officials see one increase by the end of that year, three see two, three see three and another three see four. Two think the Fed will have raised rates six times.Both Fed policy debates will affect financial markets. Bond-buying and low rates tend to pump up prices on houses, stocks and other assets, so the Fed’s pullback could cause them to cool off. And they matter for the economy: If the Fed removes support too late and inflation gets out of control, it could take a recession to rein it in again. If it removes its help prematurely, the slowdown in demand could leave output and the labor market weak.The Fed will be working against a changing backdrop as it tries to decide what full employment and stable prices mean in a post-pandemic world. More money from President Biden’s $1.9 trillion economic aid bill will soon begin to flow into the economy. For example, the Treasury Department in July will begin depositing direct monthly payments into the accounts of millions of parents who qualify for an expanded child tax credit.But expanded unemployment insurance benefits are ending in many states. That could leave consumers with less money and slow down demand if it takes would-be workers time to find new jobs.As the trends play out, White House officials will also be watching to see whether the economy is hot or not. The administration is trying to pass a follow-up fiscal package that would focus on longer-term investments, and Republican opposition has centered partly on inflation risks.For Mr. Kaplan at the Fed, the point is to be watchful. He said it was important to learn from the lessons of the post-2008 crisis recovery, when monetary policy support was removed before inflation had meaningfully accelerated — but also to understand that this rebound is unique.“Realizing that this is a different situation is a wise thing,” Mr. Kaplan said. More

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    The Pandemic Stimulus Was Front-Loaded. That Could Mean a Bumpy Year.

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    When government support fades away, there’s a risk that the affluent will sit on their cash rather than spend it.Waiting in line to file for unemployment benefits in Fort Smith, Ark., last April. Nick Oxford/ReutersThe U.S. economy is about to face a new challenge that has its roots in the arithmetic of growth: That which fiscal stimulus giveth, fiscal stimulus taketh away.The $1.9 trillion American Rescue Plan enacted in March, as well as a $900 billion pandemic aid package passed in December, are heavily front-loaded. They were set up to get money out the door fast. But one consequence of that strategy is that fiscal policy in the quarters ahead will subtract from economic growth.Economists mostly project that the economy, with strong momentum in the labor market and huge pools of pent-up savings by households, will be strong enough to keep growing despite the fading of the fiscal boost. To avoid an economic downturn, a huge handoff must occur from government-driven demand to the private sector.The mainstream view is that this will be successful. But there are aspects of this unusual economic moment that could make the road ahead bumpy.There is no modern precedent for such huge swings in sums the government is pumping into the economy. And there is a risk — recently acknowledged by a top Federal Reserve official — that if pandemic-era savings are disproportionately held by the affluent, they will sit on that cash rather than spend it.“We’re definitely going to see a huge drop-off in fiscal stimulus,” said Nancy Vanden Houten, lead economist at Oxford Economics. “The question then is how well positioned is the economy to deal with that, and we don’t really know for sure, which applies to so much about this period we’re going through.”Most Americans who were to receive stimulus checks of a combined $2,000 per person have already gotten them. The Treasury Department said this month that $395 billion of that cash is now shipped, which is slightly more than the payments in the American Rescue Plan were projected to cost when it was passed.While unemployment insurance payments remain elevated, that spending is also tapering as people return to work — and supplements to those payments are scheduled to expire in September. Much of the other spending was either near-term, focused on things like vaccine rollout, or will be spent very gradually, such as on an expanded child tax credit and grants to state and local governments.Overall, government spending added 8.5 percentage points to the economic growth rate in the first quarter, according to calculations by the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. But that so-called fiscal impact is forecast to turn slightly negative in the second and third quarters — and then act as a meaningful drag on growth in the fourth quarter of 2021 and in 2022.By the second quarter of 2022, fiscal policy is on track to subtract 3.3 percentage points from the growth rate, considerably more than the 2.2-percentage-point subtraction in the third quarter of 2011, which was the most extreme quarter in the last post-stimulus hangover of the previous recession.That could change depending on where negotiations on infrastructure and family support policies lead, but those policies would be expected to influence fiscal policy over many years — they are backloaded rather than front-loaded — so they shouldn’t radically change the near-term future.The case for staying calm even as federal spending plummets rests on the rapid growth of the private sector in recent months.Employers are adding to their payrolls at a breakneck pace, so rising compensation ought to prop up consumer spending even as government support goes away. Businesses report being in an expansionary mood, which bodes well for investment spending. And overseas economies should start to surge ahead as other countries achieve more widespread vaccination, which would be good news for American exports.“I think the basic story is that the economy is reopening, so it can take the fact that this stimulus is coming off,” said Louise Sheiner, a senior fellow at Brookings.Moreover, Americans are sitting on a vast pool of savings from money they didn’t spend on things like travel and restaurants during the pandemic. Households have saved an average of $282 billion per month since March 2020, compared with $103 billion a month in 2019.So a big question for the economy in the second half of 2021 and 2022 is what happens to that cumulative additional savings of $2.5 trillion. Will it prop up near-term spending enough to keep growth on a strong track, or will Americans instead prefer the comfort of having a beefed-up balance sheet?That’s where the distributional concern arises. To the degree that money is held by people who are financially well-off, they may be less likely to spend it and help propel the economy.“Today’s fiscal tailwinds are projected to shift to headwinds next year,” said Lael Brainard, a Fed governor, in a speech this month. “So an important question is how much household spending will continue to support growth into next year, as opposed to settling back to prepandemic trends.”On the other hand, the rapidly shrinking fiscal surge could help moderate the inflation pressures that have been building in the economy. Whatever you think of the decision to send $2,000 to people, there won’t be any more checks that might push demand still higher and risk fueling a cycle of inflation.Ultimately, this is another example of the ways the pandemic-driven economy is an unusual one. The only real historical comparisons to the kinds of surges in government spending of the last five quarters involve the beginnings and ends of wars, which have their own economic dynamics.Which means it’s worth watching exactly what happens as the federal government pulls back, and whether American consumers and businesses and importers from around the world step up the way forecasters expect. More

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    Biden Administration Moves to Unkink Supply Chain Bottlenecks

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    A swath of recommendations calls for more investments, new supply chains and less reliance on other countries for crucial goods.WASHINGTON — The Biden administration on Tuesday planned to issue a swath of actions and recommendations meant to address supply chain disruptions caused by the coronavirus pandemic and decrease reliance on other countries for crucial goods by increasing domestic production capacity. More

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    Yellen Won a Global Tax Deal. Now She Must Sell It to Congress.

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    The Treasury secretary worked with finance ministers from the G7 to win support for a global minimum tax. But selling the idea to Republican lawmakers will not be easy.Treasury Secretary Janet L. Yellen secured a landmark international tax agreement over the weekend, one that has eluded the United States for nearly a decade. But with a narrowly divided Congress and resistance from Republicans and business groups mounting, closing the deal at home may be an even bigger challenge.The Biden administration is counting on more than $3 trillion in tax increases on corporations and wealthy Americans to help pay for its ambitious jobs and infrastructure proposals. Republicans have expressed opposition to any rise in taxes and have warned that President Biden’s big spending plans are fueling inflation and will deter business investment. Business groups have complained that higher taxes pose a threat to the economic recovery and will put American companies at a competitive disadvantage.Persuading members of the Group of 7 advanced economies to agree on Saturday to a global minimum tax of at least 15 percent was intended to help the Biden administration win support for its U.S. tax increases. If enacted, the global minimum tax would require that companies pay at least a 15 percent tax on income, regardless of where they are based, making it less advantageous to relocate operations to countries with lower tax rates.In an interview on Sunday, Ms. Yellen acknowledged the legislative challenge ahead and defended the Biden administration’s plans to raise taxes on corporations. She stood behind Mr. Biden’s proposal to raise the corporate tax rate in the United States to 28 percent from 21 percent.“We think it’s a fair way to collect revenues,” Ms. Yellen said on her flight back to the United States from London after attending two days of meetings with G7 finance ministers. “I honestly don’t think there’s going to be a significant impact on corporate investment.”Ms. Yellen played down the relationship between tax rates and business spending, arguing that the $1.5 trillion tax cuts that Republicans passed in 2017 did little to lift American investment. She said that the changes to the international tax code would ultimately be beneficial to U.S. firms and that even those who face higher taxes, such as Amazon, Facebook and Google, would gain from the additional certainty about their tax bills.But the fate of Mr. Biden’s proposals is not certain, and Ms. Yellen now faces the task of convincing lawmakers that large tax and spending increases will not hinder the economic recovery.Mr. Biden has been negotiating with Republican lawmakers and has expressed a willingness to narrow the scope of his tax and spending plans to rebuild the nation’s roads and bridges. The president has offered to drop his proposal to raise the corporate rate to 28 percent to secure bipartisan support, though White House officials expect to try to push that higher rate through in a separate legislative vehicle that can pass without any Republican support.Ms. Yellen acknowledged that compromise on the corporate tax rate might be necessary and said that she hoped for a bipartisan infrastructure agreement. Republicans are resisting any changes to the 2017 tax law, which cut the corporate tax rate to 21 percent.It is unclear if Republicans will support the international tax agreement, particularly a decision to impose a new tax on big, multinational corporations — even if they have no physical presence in the countries where they sell those services. That part of the agreement was offered by the United States to put to rest a fight with European countries over their digital services taxes that would hit large American technology companies.Some lawmakers have already criticized the idea as ceding taxing authority to other governments, and many business groups were still absorbing the agreement over the weekend. Ms. Yellen believes that the concept will not cost the United States much in terms of lost tax revenue. However, the fact that European countries are not dropping their digital services taxes until a deal is fully enacted has already been criticized by top Republicans in the House and Senate given it could take four years for the agreement to be put in place.If the Biden administration cannot shepherd the tax legislation through Congress, the agreement on the global minimum tax — and a separate deal that was reached on Saturday on a system for taxing large companies based on where their goods and services are sold — will be for naught. Negotiators are hoping to broaden the agreement to more countries at the Group of 20 meetings in Italy next month and then finalize a pact in October. Then countries, including the United States, will have to change their laws accordingly.The G7 summit was Ms. Yellen’s first trip abroad as Mr. Biden’s top economic diplomat. In London, Ms. Yellen received praise from her counterparts for restoring American leadership and for the Biden administration’s embrace of multilateralism after four years of President Donald J. Trump’s “America First” policies.The Treasury secretary described the job as more grueling than her previous role as chair of the Federal Reserve, pointing to the scale of the relief programs that she is overseeing and the department’s vast portfolio. An economist who has focused for years on monetary policy, Ms. Yellen is now in charge of sanctions policy, tax policy, overseeing regulators and dealing regularly with Congress.Beyond the tax negotiations, Ms. Yellen is grappling with the sensitive question of inflation and whether the president’s policies are going to stoke higher prices for a sustained period. Businesses in the United States have expressed growing concern about rising prices, along with a shortage of commodities, and a lack of available workers.Ms. Yellen maintained that she believed rising prices were a short-term issue related to the reopening of the economy and snarled supply chains. Still, the chance of a sustained jump in prices remains a concern that she is tracking closely.To determine if inflation is more than a temporary matter, Ms. Yellen is monitoring two key metrics: inflation expectations and wage increases for low-paid workers. Rising pay for the lowest-wage workers could potentially lead to “an inflationary trend” if there is broad excess demand for workers in the labor market, she warned.“We don’t want a situation of prolonged excess demand in the economy that leads to wage and price pressures that build and become endemic,” Ms. Yellen said. “Looking at wage increases, you can have a wage price spiral, so you need to be careful.”She added: “I do not see that happening now.”At the G7 meeting, Ms. Yellen raised eyebrows when she said that inflation could remain higher for the rest of the year, with rates around 3 percent. However, in the interview, she said that the comment was misinterpreted. She said that she expected inflation rates to be elevated for the next few months but then settle down to be consistent with the 2 percent rate that is the Federal Reserve’s long-term target.“I don’t see any evidence that inflation expectations are getting out of control,” Ms. Yellen said.Critics have suggested that the Biden administration’s extension of pandemic unemployment insurance is fueling the labor shortage by encouraging workers to stay at home and collect generous benefits. At least 20 states have moved to cut off benefits early to encourage people to go back to work.Ms. Yellen said the difference in how states were handling jobless benefits could shed new light on the dynamic, but that she still saw no evidence that the supplement was slowing job creation. She pointed to a lack of child care and positions that were permanently lost because of the pandemic as the more probable reason that employers in some sectors were struggling to find staff.“We wanted to support people,” Ms. Yellen said. “This isn’t something that should be in place forever.”Although the economy is improving, Ms. Yellen said that seven million jobs that were lost since the pandemic still had not been restored. Some of them might never come back.“We’re not in a tight labor market at this point,” she said. More