Allison Bailey/NurPhoto via AP
Deadline for Democracy protesters near the U.S. Capitol blockade streets and demand passage of the Build Back Better legislation, December 7, 2021.
I think it’s clear by now that congressional reporters are going to get a Christmas break. Senate Majority Leader Chuck Schumer has consistently expressed the desire to get the House-passed Build Back Better Act through his chamber by December 25. But as negotiations have dragged on throughout the past month, the fact remains that Schumer and the Democrats don’t have the votes. Joe Manchin is not on board with passing the bill, and he won’t be on board this year.
Manchin’s sticking points have been relatively consistent, though put together they look like an endless moving of the goalposts. He wanted to keep overall spending in the $1.5-$1.75 trillion range; that’s been secured. He has also argued for months that he doesn’t favor “gimmicks,” defined as enacting temporary programs that future Congresses may extend. “If it’s whatever plan it will be, pre-K, child care and in-home care, then it should be 10 years, it shouldn’t just be one year here, three years here, five years there,” Manchin said this week.
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This double bind is causing all the problems, and there’s a lot of blame to go around. By artificially reducing the resources available, Manchin is forcing unpalatable choices on the rest of his caucus, when they overwhelmingly support the current framework. But as Eric Levitz explained eloquently on Wednesday, by refusing to prioritize and promising that Democrats could have it all, the leadership whittled down these programs to the point where they would no longer even be likely to garner the public support necessary to get them extended.
I made the case for enacting fewer programs done better and on a permanent basis in The New York Times in October. For approximately $270 billion above what’s devoted to them now, you could make the pre-K and child care programs permanent; that would be a good place to start. Those programs would still be somewhat impoverished, but if they’re permanent, there’s a path to fixing them. Impermanent programs that Republicans can eliminate by doing nothing, combined with watered-down versions of those programs to save scarce funds, is a path to getting no legacy items out of the entire agenda.
Refashioning the bill with a focus on permanence will take time and a lot of wrenching deal-making, something Democrats could have initiated back when Manchin was making these same arguments months ago. It may fail entirely, which would really reflect badly on Progressive Caucus leader Pramila Jayapal’s decision to allow the bipartisan infrastructure bill to become law without Build Back Better passing simultaneously. At the least, there is no chance of reaching agreement in the next ten days, so Build Back Better 2021 is sure to become Build Back Better 2022.
That is important in one key respect. The politically popular enhancement and advanced payments of the Child Tax Credit, which was passed in the American Rescue Plan in March, was only done for one year. After the December 15 payment made yesterday, those monthly advances will end if no action is taken. Checks of $300 a month for children under age 6 and $250 a month for children between the ages of 6 and 17 will end. To keep those payments on track, Democrats would have to pass some fix before the end of the year, and as I’ve explained, that’s probably out.
This is partially leavened by the fact that the second half of 2021 Child Tax Credit payments will be delivered in a lump sum in family tax refunds. Previously, the entire $2,000 annual CTC was given through taxes; this year’s lump sum will be $1,800 for young children and $1,500 for older ones. The 2021 payments are fully refundable, however, which means the poorest families will have access to them even if their incomes were so low they paid no taxes.
That all means that refunds will look pretty normal for families this year. And psychologically speaking, getting that refund may take people’s eyes off the ball about how their monthly checks stopped coming. But eventually, they’ll figure it out, and it will show up in a loss of purchasing power. Democrats are trying to come up with a short-term extension of the CTC right now, to avoid this cliff. But Manchin doesn’t want the increased CTC to stick around at all, which could leave the Senate short of the necessary votes.
This cutoff of CTC payments is not the only looming financial problem facing millions of Americans. Since the pandemic began, student loan payments have been on a pause. The pause has been extended several times, but the White House has confirmed that it will not extend the pause again after January 31. This means that payments of $393 per month (on average) will resume for 42 million federal borrowers. The raw total of those renewed payments, on an annual basis, approaches the level of the one-time checks handed out in the American Rescue Plan.
So under current policy, in January, CTC checks will stop, and in February, student loan payments will restart. This double whammy is a form of austerity that might bolster the federal government’s bottom line, but will severely crunch millions of families and young college graduates in the middle of an inflation surge.
I’M REMINDED OF TWO historic situations. The first was in 1937, when Franklin Roosevelt, confident that his New Deal policies had put the economy on greater footing, tried to balance the budget, concerned about (as his Federal Reserve chair Marriner Eccles put it) a “dangerous inflation” in consumer goods. This triggered a recession within the Great Depression, one that Roosevelt had to work to reverse; the buildup prior to WWII—which didn’t really take effect until four years later—finally did the trick. Periodically over the years, we have relived 1937, with too-soon efforts to kick out federal support for the economy. If we reimpose significant costs on families and young people at the outset of 2022, we could relive 1937 all over again.
The second historical analogy is 1979, when Fed chair Paul Volcker announced that he would “break the back” of inflation with persistent interest rate hikes. This lasted for three years and created the worst economic downturn since the Depression and the decimation of Midwestern manufacturing. Eventually, inflation came down and Volcker eased up, at the cost of the financial fortunes of millions.
What we’re doing now, though nobody is likely to admit it, is a form of this inflation-fighting. The implicit idea is that, by removing purchasing power from college grads and families, we reduce demand for consumer goods, which will trigger a reduction (or slower growth) in prices. Instead of doing this through Federal Reserve interest rate policy, we’re doing it by directly burdening individuals with student loan costs, and reducing their share of a child allowance, rather than the indirect rate-setting mechanism.
Either way, the effect is the same: putting people out of work (which is what would happen if you reduce consumer spending) and indiscriminately damaging a lot of lives. And in this case, it’s extremely unlikely to bring about any kind of inflation-fighting goal. We currently have a supply problem that has little to do with consumer demand. If your staple items that you can’t cut from your budget can’t get to the store, relative demand isn’t likely to fix the scarcity or bring the prices down.
In fact, in the current crunch, it could worsen the problem. Companies have been double-ordering inventory because of the uncertainty of getting goods smoothly. The slightest reduction in demand could leave them stuck with a bunch of items that nobody wants or can afford. This is a ticking time bomb that could prompt those companies to lay off workers. It’s a function of an unstable supply chain, and pushing austerity on millions of people could light the fuse.
So you have a form of inflation-fighting that won’t actually fight inflation, doesn’t deal with the supply issues at the heart of the problem, and instead stumbles into austerity for no good reason. A combination of overconfidence, reluctant corporate Democrats, and wrong-headed political strategy has Democrats moving in a disastrous direction.
There’s time for them to pull out of this deadspin. Progressives have suggested extending the student loan payment pause, and the Senate is mulling over a short-term CTC extension to bridge to Build Back Better passage. Maybe focusing on fixing supply chains can lower prices and raise real wages. Whatever the solution, some decisions need to be made, and soon.
