President Biden received an unexpected and timely endorsement this week for his physical and human infrastructure proposals from Moody’s Analytics, which provides corporate risk analysis. Moody’s macroeconomic assessment says a $4 trillion investment “will strengthen long-term economic growth, the benefits of which would mostly accrue to lower- and middle-income Americans.”
The report, released the same day Senate Republicans blocked advancing a bipartisan physical infrastructure bill, defangs a chief GOP objection to Biden’s expansive spending proposals. Moody’s Chief Economist Mark Zandi says, “Worries that the plan will ignite undesirably high inflation and overheat the economy are overdone. The fiscal support it provides is only sufficient to push the economy back to full employment from the recession caused by the COVID-19 pandemic.”
“Increasing infrastructure investment has significant macroeconomic benefits,” the report concludes. “Near term, it has a large so-called multiplier – the increase in GDP for a dollar increase in investment. It is among the highest compared with other types of federal government spending and tax policy.” The report says infrastructure investments over time can lower business costs, improve competitiveness and productivity, allow workers to live closer to where they work, improve labor participation and reduce carbon emissions.
Democratic Senate Majority Leader Chuck Schumer couldn’t have made the case any better.
The Senate bipartisan physical infrastructure measure still is being negotiated, which is the reason Republicans gave for opposing Schumer’s cloture motion to move the bill to the floor. Negotiators are still arguing over details of the package estimated at $1 trillion, including what revenue sources to include. Meanwhile, Democrats have assembled a budget reconciliation package embodying Biden’s proposals for childcare, education, housing and Medicare expansion.
Some Democrats worry the GOP strategy is to run out the clock before Congress adjourns for its customary August break. House Democrats, including Oregon Congressman Peter DeFazio, have voiced concern the negotiations will involve further compromises.
A growing view is that a slow-walk of the bipartisan physical infrastructure bill is linked to an approaching September 30 deadline for Congress to raise the national debt limit. Senate Minority Leader Mitch McConnell announced on Wednesday his caucus won’t vote for a debt limit increase, a stance Schumer and Oregon Senator Ron Wyden, who chairs Senate Finance, sharpy condemned as financially irresponsible. The Congressional Budget Office estimates the federal government could go into technical default by October or November. The Treasury Department says it could be sooner.
Congressional Democratic leaders must decide how to move a debt limit resolution along with or possibly combined with a $3.5 trillion budget reconciliation resolution to authorize Biden’s human infrastructure plans. They also must pass a budget resolution to reconcile.
The Moody’s Analytics risk assessment landed at a propitious moment for Democrats by essentially giving an economic blessing to robust physical and human investment – and potentially higher national debt to stimulate economic growth.
The Moody’s report notes the economic effects of the physical infrastructure bill won’t be felt until mid-decade because most construction projects require time for design and permit approval before they can begin. A good example would be the I-5 Columbia River Bridge replacement, a candidate for funding under the plan, but still not shovel-ready.
Quicker and more substantial short-term benefits would flow from the human infrastructure package Democrats will try to pass without GOP votes in a budget reconciliation bill, which isn’t subject to a Senate filibuster. Moody’s says the package could boost GDP growth to 5.4 percent by next year, tax cuts for lower-income Americans would likely turn into spending immediately and higher taxes on corporations and the wealthy would have a smaller, delayed impact on private investment and consumer spending.
“The increased social investments in the package, particularly related to child and elder care, healthcare and housing, also quickly support stronger GDP and jobs,” according to the Moody’s report. “There are more than 2 million additional jobs by mid-decade and the unemployment rate is at least 0.5 percentage point lower. The unemployment rate returns to its pre-pandemic lows in the mid-threes, although labor force participation never fully recovers. Longer term, the economy’s growth enjoys a measurable increase due to stronger productivity gains given greater educational attainment and higher labor force participation.”
The best legislative outcome for the economy, Moody’s concludes, is to pass both infrastructure investment bills.
The increased social investments in the package, particularly related to child and elder care, healthcare and housing, also quickly support stronger GDP and jobs.
Regarding inflation and higher taxes, the report says, “Inflation will remain uncomfortably high even after the current disruptions to the supply side of the economy caused by pandemic are ironed out, and the economy could potentially overheat as the Federal Reserve is forced to respond by tightening monetary policy quickly. This concern cannot be dismissed, but it is likely misplaced. With unemployment still near 6 percent and labor force participation well below where it was pre-pandemic, the economy still has considerable slack, equal to approximately 10 percentage points of GDP.“
Next week in Congress, policy and politics will meet head-on as Democrats are expected to press for action on the bipartisan physical infrastructure bill, the human infrastructure reconciliation resolution and possibly a resolution to raise the debt limit before adjourning for August – and before electioneering for the 2022 midterms starts in earnest.
If that wasn’t enough, the House committee investigating the January 6 Capitol riot will hold its first hearing next Tuesday, listening to testimony from four Capitol police officers. House Speaker Nancy Pelosi rejected two of the five members House Minority Leader Kevin McCarthy proposed, leading him to threaten pulling all five of his nominees from the panel. Congresswoman Liz Cheney, R-Wyoming, was appointed by Pelosi. McCarthy threatened to seek her removal from the House Energy and Commerce Committee if she participated on the panel.
