Democrats Need to Scale Back the Reconciliation Bill

One of my oft used turn of phrase, upon examining the dumpster fire that is the Republican Party, is, “…and they said being a conservative Democrat would be hard.” While the GOP/RPV is still making that far easier than I had any right to expect, I can’t avoid intraparty heartburn entirely. The best example of this is the lumbering “reconciliation” bill, labelled to describe the method required to pass a laundry list of Biden economic priorities without any Republican support. While there are parts of it that shouldn’t be controversial (such as making the child tax credit permanent), trying to pass the $3.5T behemoth is bad politics and – given the current disconnect between aggregate demand and aggregate supply – bad economics. My party would be wiser to scale back the bill and reduce its scope.

I’ll start with the economic argument. The American economy is still trying to recover from COVID, but the problem isn’t on the demand side. GDP growth is fairly robust, as is job growth (if one looks at the household survey of employment). The problem is inflation, which has been north of 5% for the past year. That tells us that aggregate supply is having trouble keeping up with demand. Anecdotes of supply-chain snarls have dominated the news lately, but the pricing data backs them up – and the Biden Administration’s efforts to address shipping oligopolies will only go so far in addressing it.

This is the supply-siders’ moment to come to the fore and present solutions.

The first thing (or set of things, to be precise) Biden can do needs no Congressional action at all. He can reverse the Trump tariffs imposed on our allies and reopen negotiations for the Trans-Pacific Partnership. After all, if moving products and inputs around the world is getting more expensive and driving up consumer prices, the best way to address that is to stop the government from making things worse.

As for the “reconciliation” bill, the idea of spending more than 1.5% of GDP annually to aggregate demand should be bringing a lot more pause than it currently does within my party. While Biden et al have touted higher taxes and greater scrutiny of tax evasion to cover the cost, this leads to two additional problems: 1) tax increases rarely, if ever, bring in the revenue they’re projected to score, and 2) the type of tax increases (on corporations and high-income earners) is likely to make the aggregate supply problem worse rather than better (this is not a problem for the bi-partisan-ish infrastructure bill, which is designed to make improvements that would increase aggregate supply).

Meanwhile, the politics of the bill are also turning against the Democrats. Contrary to last year, Americans are now turning against larger government again. To be sure, most of the items within the bill remain popular, but adding them all together creates the aforementioned problems – and the American people are, in fact, noticing. As Catherine Rempell noted in the aforementioned link…

Democrats should do fewer things better, not more things poorly. Focusing their agenda will enable more effective “messaging,” better-executed programs and more supportive voters tomorrow.

And perhaps more supportive voters today, too.

Getting into specifics, it could mean scrapping tax increases to pay for the child tax credit and replace them with Mitt Romney’s plan instead. If taxes must be raised to address even the small reconciliation bill, a carbon consumption tax makes much more economic sense than corporate or personal income tax hikes (especially from an aggregate supply perspective).

Congressional Democrats also have to consider that the next debt ceiling alleviation will almost certainly have to be included in the reconciliation bill to have any chance of being enacted. The smaller the price tag, the less heartburn that will be.

Telling the majority of my party what they don’t want to hear isn’t any easier as a Democrat than it was as a Republican (and I did that for years here). It needs saying anyway. The reconciliation bill as presently proposed is too unpopular and too inflationary. Reducing its scope while adjusting the funding mechanisms would vastly improve it.

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