Are Republicans and Democrats capable of compromising to make sound public policy decisions?
Based on the extreme partisan wrangling over the past decade, the odds might appear slim to none. However, the negotiations over public infrastructure spending have at times raised hopes that a compromise might be reached, only to be dashed when the two sides could not reach agreement about the amount of new spending and how it would be financed.
With these issues unresolved, President Biden met with Sen. Shelly Moore Capito (R.-W.Va.) in early June to see if the differences could be ironed out. Meanwhile, a group of moderate lawmakers from both parties discussed a plan in the event talks between the GOP leadership and the White House broke down. When that happened, the two sides were able to iron out a scaled-down plan. It calls for $597 billion of new spending on public infrastructure that would be financed by an array of measures that did not require hikes in personal or corporate taxes.
Hopes that a compromise had been reached were bolstered when President Biden indicated his approval of the infrastructure plan. However, Biden subsequently threatened to veto the deal if it was not accompanied by a much larger spending bill that contained key elements of his social agenda.
The goal of the Democrats is to pass an omnibus spending bill via reconciliation that requires only a majority vote in the Senate. However, making it a precondition for passage of the infrastructure bill added to the complexity of passing it, because Republicans are opposed to a large spending bill. Consequently, Biden walked back his comment when Republicans threatened to withdraw their support for the infrastructure bill.
This begs two questions. First, why is bipartisan support for infrastructure spending important? Second, what would constitute a “good” bill?
My answer to the first question is that infrastructure spending is one area where both sides want a bill enacted. The reason: There is widespread recognition that spending to maintain roads, bridges and waterways, as well as to build out broadband, is inadequate. For example, the American Society of Engineers assigned a “D+” rating in assessing the quality of U.S infrastructure in 2017 after President Trump assumed office. The rating has since been upgraded to “C-.”
President Trump was unsuccessful in enacting infrastructure legislation because he spent much of his political capital trying to overturn Obamacare and then to pass corporate tax cuts. By comparison, President Biden has moved infrastructure near the top of his legislative priorities. However, if he is unable to reach agreement with Republicans, compromise on other issues—where differences are considerably greater—is highly unlikely.
As regards the substance of the legislation, my critique of the original Biden proposal was that it was overly ambitious and not targeted at meeting the greatest priorities. It totaled $2.2 trillion over ten years, and only one quarter of the spending dealt with traditional infrastructure while another 10% went for high-speed broadband, the electric grid and clean energy.
While $600 billion in proposed spending was eliminated in the second proposal, there was still room to make additional cuts. Following the first meeting with Senator Capito, President Biden lowered his spending request to $1 trillion above what is projected in the baseline budget. Yet, this was still considerably higher than what the Republicans had put forth. Biden also floated the idea of raising the minimum corporate tax to 15% to pay for the spending in lieu of hiking the marginal rate from 21% to 28%.
Some liberals, however, argued this was too big of a concession. For example, Columbia University economist Jeffrey Sachs views the GOP infrastructure offer as a “sham”. He calls the added funding by Republicans a “pittance” and argues that Republicans are trying to squeeze the working class by paying for infrastructure with user fees. In his view, it’s time for Biden to push through his plan on a party-line vote using the reconciliation process.
The problem with this assessment is it views infrastructure in isolation and does not consider the totality of government spending presented in the White House budget proposal. It calls for about $4 1/2 trillion in federal spending that would be offset by $3 1/2 trillion in tax increases over the next decade. If enacted, it would raise spending as a share of GDP to an average of 24.5% over the next decade, well above the 50-year average of about 20.5%, and the highest in U.S. peacetime history.
Even with favorable economic assumptions, the Biden administration acknowledges that deficits would average just over 5% of GDP in the coming decade, for a cumulative increase of $14.5 trillion. This would boost the ratio of publicly-held government debt to GDP to 113%, well above the peak of 107% following World War II.
The bottom line is the fate of infrastructure bill will determine whether any part of Biden’s agenda can be passed with bipartisan support. While President Biden has demonstrated flexibility in paring down proposed infrastructure spending, the gulf between the two parties on overall government spending and taxes may be irreconcilable. If so, it would signal that policy gridlock is still business as usual in Washington, D.C.