Biden’s Plan B: A Deficit-Reduction Bill?

Biden’s Plan B for Build Back Better: A Deficit-Reduction Bill to Win Over Manchin?

The White House is reportedly considering revamping President Biden’s Build Back Better economic plan and making it more of a deficit-reduction package in an effort to win the support of Sen. Joe Manchin (D-WV), the centrist who has cited debt and inflation concerns in scuttling a previous version of the bill passed by the House.

"A lot of people in the White House are spending time looking at what they can do to make deficit reduction central to Build Back Better, with a strategy of appealing to an audience of one," one source reported to be in touch with senior administration officials told The Washington Post’s Jeff Stein. "More so than at any other time in this administration, deficit concerns are driving a lot of policy and rhetoric inside the building."

Any such effort would require further scaling back spending proposals that have already been cut from an initial $3.5 trillion to $1.75 trillion. "The precise ideas on the table are not clear, and the people familiar with the discussions cautioned they are preliminary and that no written plan has emerged," Stein reports, adding that "White House officials have circulated internally a column by the liberal commentator Matt Yglesias suggesting the party could approve $500 billion in climate programs and $400 billion in health-care initiatives — and still unify behind enough tax hikes that the legislation would curb the deficit over 10 years by $800 billion."

Manchin has made clear that he would favor a tax reform bill that partially reverses the 2017 Republican tax cuts and significantly cuts the deficit. He has also indicated he’s open to the $555 billion in climate change provisions in the House bill and to measures expanding health care coverage and lowering prescription drug costs.

That kind of overhaul of the Build Back Better plan would leave some progressive priorities by the wayside — and probably exclude the expanded child tax credit that Biden has touted a drastically cutting child poverty. The increased deductibility of state and local taxes, which some Democrats have said must be in the bill to secure their votes, may also have to be dropped.

How we got here: Biden and other administration officials have insisted that the $1.75 trillion, House-passed version of their plan was fully paid for and would not increase deficits. But the Congressional Budget Office said that version of the bill would raise deficits by about $160 billion over 10 years.

The Biden administration disputed that figure, arguing that stepped up Internal Revenue Service enforcement would raise more revenue than CBO projected, but their arguments fell flat with Manchin, who decried the use of budget gimmicks to limit the official price tag of the legislation. Democrats, trying to pack most of their priorities into the bill, had limited the duration of some programs even as they hoped to extend them in the future and insisted that any extensions would be paid for when enacted.

What’s next: Manchin’s priorities are getting plenty of consideration as Democrats look to salvage their economic agenda, but as we said yesterday, changing the plan to suit Manchin is sure to raise some other Democrats’ hackles. "There could be significant difficulties in selling the package to progressive in the House," Bloomberg’s Jennifer Epstein, Erik Wasson and Laura Davison report, citing a senior House Democrat. "Spending $800 billion would be a 75% cut from last year’s goal of a $3.5 trillion package. Trimming it down to primarily the climate change initiative would leave just one or two other programs, leaving many member priorities on the cutting room floor, the Democrat said."

The bottom line: We started the week by telling you about a debate around Modern Monetary Theory, a school of economic thought that sanctions aggressive deficit spending and says resource constraints rather than fiscal constraints should underpin spending decisions. Did that line of thinking win in the pandemic response, or has it failed? We’re ending the week with an indication of just how much the political and policy winds around deficits have shifted in the last year or two.

More Covid Relief for Restaurants?

Senate Small Business Committee Chair Benjamin Cardin (D-MD) wants to provide another round of relief funds for restaurants and other small businesses that deal closely with customers, Roll Call’s Lindsey McPherson and Laura Weiss report.

The money would be provided through the 2022 budget agreement lawmakers are currently working on – and it would be the last effort to provide such aid. "We’re not going to be asking to come back again for any additional funds," Cardin said. "This is it."

The lawmaker provided no details on how much he plans to provide, but the target of the effort is the Restaurant Revitalization Fund, a grant program that Congress funded with $28.6 billion last year. That fund quickly ran out of money, turning away the majority of applicants.

The funding will come from a mix of already appropriated funds and new money. "We don’t have enough unused money," Cardin said. "So we will repurpose whatever we can, but we’re going to need more resources."

US Plans to Use $7 Billion in Frozen Funds for Afghan Relief and 9/11 Lawsuits

President Biden issued an executive order Friday clearing the way to release $7 billion held in the U.S. that was deposited by the central bank of Afghanistan before the Taliban took over last year. According to the plan announced by the White House, which will face review in the courts, roughly half of the money is to be spent on relief operations in the war-torn country, which is facing a humanitarian crisis, while the other half is to be used to satisfy legal claims against the Taliban made by people affected by the 9/11 terrorist attacks.

Last August, as the U.S. withdrew from Afghanistan and the Taliban rapidly seized control of the country, all Afghan funds in the U.S. were frozen by the Biden administration. Biden’s new executive order calls for the funds to be transferred to an account at the Federal Reserve Bank of New York, which already holds most of the Afghan assets.

The "highly unusual set of moves," says The New York Times’ Charlie Savage, "is meant to address a tangled knot of legal, political, foreign policy and humanitarian problems stemming from the attacks and the end of the 20-year war in Afghanistan."

In a statement, Biden said the U.S. "will continue to work tirelessly with the international community to ensure that humanitarian assistance and other support flows to the people of Afghanistan."

But the Taliban quickly announced that it opposes the U.S. plan, and Abdullah Azzam, secretary to Taliban acting first deputy prime minister Abdul Ghani Baradar, denied the president’s right to make such a move. "Biden doesn’t have the right to pay from Afghans’ assets the ransoms of those whom the Afghans have not killed. American President should not prove his generosity by paying from others’ wealth."

"Instead of spending trillions of American taxpayers’ money on a corrupt regime and merciless war in Afghanistan, the US government should have paid the 9/11’s victims with it," Azzam added. "Giving them traumatized Afghans’ money is a blatant theft."

Some 9/11 victims’ relatives spoke in favor of the plan, but others expressed concerns about the morality of seizing the impoverished nation’s assets. "While 9/11 families are seeking justice for their loss through these suits, I fear that the end result of seizing this money will be to cause further harm to innocent Afghans who have already suffered greatly," Barry Amundson, whose brother was killed in the terrorist attacks, told The New York Times.

One financial expert warned that the move could severely damage the Afghan economy, making an already bad situation much worse. Dr. Shah Mohammad Mehrabi, an economics professor in the U.S. who serves on the board of the Afghan central bank, told the Times that the move would deprive the banking system of sufficient capital, paving the way for an economic disaster. "You’re talking about moving toward a total collapse of the banking system," he said. "I think it’s a shortsighted view."

And at least one foreign policy expert questioned the wisdom of the plan. "The 9/11 victims deserve justice but not from the Afghan people who themselves became pawns caught in the middle of the US-led ‘war on terror’ and an oppressive Taliban regime," Adam Weinstein, an Afghan war veteran at the Quincy Institute, told The Guardian. "The idea that overnight, the central bank reserves went from belonging to the Afghan people to being the transferable property of the United States is nothing short of colonial."

• The Inflation Story Isn’t Getting Any Happier – John Authers, Bloomberg
• The Party That's Out of Power Never Believes the Economy Is Strong – Dan Primack, Axios
• Build Back Better Was Always a God-Awful Name – Benjamin Hart, New York
• 12 Economically Insecure Americans on What Keeps Them Up at Night – Laura Reston, New York Times
• Biden’s Hidden Health Care Triumph – Paul Krugman, New York Times
• Six Major Reasons the Postal Service Reform Act Is Insufficient – Paul Steidler, The Hill
• Mask Mandates Didn’t Make Much of a Difference Anyway – Faye Flam, Bloomberg
• Biden’s White House Makes a Telling Mistake – Jonathan Bernstein, Bloomberg