J. Scott Applewhite / AP
Sen. Joe Manchin, D-W.Va., leaves his office moments after speaking with President Joe Biden about his long-stalled domestic agenda, at the Capitol in Washington, Monday, Dec. 13, 2021. Manchin is a pivotal Democratic vote on passage of the president’s top legislative priority.
Monday, Dec. 20, 2021 | 2 a.m.
WASHINGTON — Sen. Joe Manchin effectively killed President Joe Biden’s signature domestic policy bill in its current form Sunday, saying he was convinced the spending and tax cuts in the $2.2 trillion legislation will exacerbate already hot inflation.
Economic evidence strongly suggests Manchin, D-W.Va., is wrong. A host of economists and independent analyses have concluded that the bill is not economic stimulus, and that it will not pump enough money into consumer pocketbooks next year to raise prices more than a modest amount.
The reason has to do with the pace at which the bill spends money and how much it raises through tax increases that are intended to pay for that spending. The legislation spends funds over a decade, allowing the taxes it raises on wealthy Americans and businesses, which will siphon money out of the economy, to help counteract the boost from spending and tax cuts.
The bill also does not provide the type of direct stimulus included in the $1.9 trillion pandemic aid package Biden signed in March — and which Manchin supported. Some of its provisions would give money directly to people, like a continued expanded child tax credit, but others would fund programs that would take time to ramp up, like universal prekindergarten.
Economists say the net result is likely to be at most a tenth of a percentage point or two increase in the inflation rate. That would be a relatively small effect at a time when supply chain crunches, surging global oil demand and a pandemic shift among consumers away from travel and dining out and toward durable goods have combined to raise the annual inflation rate to 6.8%, its fastest pace in nearly 40 years.
For months, Manchin has warned the president and congressional leaders that he was uncomfortable with the breadth of what had become a $2.2 trillion bill to fight climate change, continue monthly checks to parents, establish universal prekindergarten and invest in a wide range of spending and tax cuts targeting child care, affordable housing, home health care and more. He has cited both the risks of inflation and his fear that the package could further the balloon the federal budget deficit, saying several programs that are now estimated to end in a few years would likely be made permanent.
Over the past week, he has insisted that the bill shrink to fit the framework of less than $2 trillion that Biden announced this fall, and that — crucially — the legislation not use budget gimmicks to artificially lower the bill’s effect on the budget deficit.
In a statement Sunday, Manchin said Democrats “continue to camouflage the real cost of the intent behind this bill.”
White House officials have tried to promote the idea that the bill would reduce price pressures right away — an outcome economists have not entirely bought into. But the general economic consensus finds little evidence to suggest the bill risks exacerbating rising food, gasoline and other prices.
Today’s inflationary surge stems from a confluence of factors, many of them related to the pandemic. The coronavirus has caused factories to shutter and clogged ports, disrupting the supply of goods that Americans stuck at home have wanted to buy, like electronics, televisions and home furnishings.
That high demand has been fueled in part by consumers who are flush with cash after months of lockdown and repeated government payments, including stimulus checks. Research from the Federal Reserve has shown that inflation is most likely getting a temporary increase from the coronavirus relief package in March, which included $1,400 direct checks to families and generous unemployment benefits. But Biden’s social policy bill would do relatively little to spur increased consumer spending next year and not enough to offset the loss of government stimulus to the economy as pandemic aid expires.
White House aides have tried to make that case to Manchin — and the public — in recent weeks, pointing to a series of analyses that have dismissed inflationary fears pegged to the bill. That includes analysis from a pair of Democratic economists who warned about rising inflation earlier this year — Harvard University’s Lawrence H. Summers and Jason Furman — and from the nonpartisan Penn Wharton Budget Model at the University of Pennsylvania. All of those analyses conclude that the bill would add little or nothing to inflation in the coming year.
The disconnect between economic reality and Manchin’s stated concerns has exasperated the White House, which is struggling with voter discontent toward Biden over rising prices, as well as an unyielding pandemic.
In a scathing statement about Manchin on Sunday, the White House press secretary, Jen Psaki, noted that the Penn Wharton analysis found Biden’s bill “will have virtually no impact on inflation in the short term, and in the long run, the policies it includes will ease inflationary pressures.”
White House officials, who along with party leaders have spent weeks trying to bring Manchin to a place of comfort with Biden’s bill, registered a sense of betrayal after the senator’s declaration.
Psaki said Manchin had last week personally submitted to Biden an outline for a bill “that was the same size and scope as the president’s framework, and covered many of the same priorities.” He had also promised to continue discussions toward an agreement, she said.
Republicans celebrated Manchin’s statement as evidence that the bill, which Democrats were attempting to pass along party lines, was full of inflationary policies that even the president’s own party could not get behind.
Still, Manchin’s concerns leave the White House at least the possibility of a path forward, albeit not the one that Biden set out to travel. Some Democrats and administration officials believe there is still a chance to recast the bill to suit Manchin’s demands and to possibly pass it in the early months of next year.
This article originally appeared in The New York Times.
