Treasury Secretary Janet Yellen is urging Democratic lawmakers not to be spooked by Friday’s inflation numbers and a new analysis of President Joe Biden’s social spending bill designed to portray it as exceedingly costly.
The memo, titled “Fiscal Responsibility and the Build Back Better Act,” was sent to the Senate on Thursday night and obtained by POLITICO. In it, Yellen delivered a prebuttal to two government reports that could affect key senators’ support for the social spending plan serving as a centerpiece of Biden’s economic agenda. The first of those reports is the consumer price index for November, which showed that inflation had jumped to the highest level in nearly 40 years.
The second is the Congressional Budget Office, which looked at the longer-term monetary impact of the Build Back Better plan if the programs in it were not set to expire, as they currently are under the legislative language. Republicans lawmakers had requested the CBO score as a means of producing an alternate, potentially higher cost associated with the social spending plan, which would extend the enhanced child tax credit but for only a year, in addition to expanding health care coverage and combating climate change.
The analysis found that the cost of a “modified” version of the bill as specified by Republicans “would increase the deficit by $3.0 trillion” over 10 years. By comparison, the social spending bill passed by House Democrats last month would increase the deficit by $0.2 trillion over the same time period, CBO said. The cost difference between the two estimates comes down to whether the child tax credit, which currently ends after 2022 in the House-passed version, is ultimately extended by future Congresses.
In her letter, Yellen wrote that because Biden has promised to pay for any prospective extension of programs under the current version of the BBB bill, “it is inappropriate to judge this legislation based on an assumption that future acts of Congress won’t be paid for.”
“Tomorrow, the Congressional Budget Office is expected to release its analysis,” Yellen wrote. “To be clear, this should not be confused with a score of the Build Back Better Act, which was already released. Instead, this analysis is of a bill that the House did not pass, the Senate is not considering, and the President — who has committed to paying for permanent investment — would not sign.”
Yellen also said of inflation concerns that “the modest near-term net deficit impact should not lead to economic overheating.” She pointed to the CBO score released in November that found the bill’s aggregate costs would offset over the next decade.
“In the later part of the decade, as confirmed by the CBO score, the legislation will be deficit-reducing on an annual basis, and thus cannot be expected to contribute to inflation in those years,” Yellen wrote.
Yellen sent the memo as the administration works toward Senate passage of a revised Build Back Better bill, said a Treasury source. In the letter, Yellen hammered home that Biden has long said he would pay for “long-term policies” and that commitment “applies equally to extensions of temporary policies now in the Build Back Better Act and looking ahead.”
Still, Sen. Lindsey Graham (R-S.C.), who requested the estimate from the CBO, took the opportunity to browbeat Democrats over the new analysis of the “modified” version of the bill.
“If you believe these programs go away after one, two or three years, you shouldn’t have a driver license,” said Graham in a press conference on Friday. “We all know that the child tax credits are not going to go away after a year.”
The expansion of the child tax credit this year through the Democratically-passed Covid-relief plan substantially reduced child poverty. Without passage of the one-year extension in Biden’s social spending plan some experts have estimated that roughly 10 million children could fall back into poverty when the credit expires at the end of the year.
“Joe Manchin I believe will listen to the facts,” said Graham, referring to the West Virginia senator’s hesitations about the bill. Graham’s assessment assumes future, possibly GOP-led Congresses would both renew Biden’s programs and do so without pay for them.
Yellen’s note to senators comes as four Senate committees released legislative text and CBO scores pertaining to the BBB bill on Thursday, with more text and revisions expected in the coming days.
The memo comes just days after Manchin again expressed reluctance about supporting the bill, citing inflation.
“The unknown we’re facing today is much greater than the need that people believe in this aspirational bill that we’re looking at and we’ve got to make sure we get this right,” Manchin said at a Wall Street Journal CEO Council Summit.
In recent weeks, the White House has stepped up its defense of Biden’s bill and has tried to stay ahead of inflation fears. The administration has also increased its attacks on Republicans for blaming Biden for rising costs of gasoline and consumer goods, arguing that the GOP is offering little if any solutions of its own, and arguing that the social spending plan will help Americans with some of their major costs, mainly around child care.
In a move to set expectations ahead of Friday’s inflation report, Biden issued a statement citing a drop in natural gas prices and a decline in used car prices, which he said “should translate into lower prices for Americans in the months ahead.”
“The information being released tomorrow on energy in November does not reflect today’s reality, and it does not reflect the expected price decreases in the weeks and months ahead, such as in the auto market,” Biden said, adding that his Build Back Better plan would help “address elevated prices and to lower costs for American families.”
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