Washington Weekly: Next Up: Infrastructure

The Senate approved the nominations of Marcia Fudge to serve as Secretary of Housing and Urban Development, Merrick Garland to serve as Attorney General and Michael Regan to serve as Administrator of the Environmental Protection Agency. The House approved the Senate-passed COVID relief bill, legislation to expand background checks on gun purchases and a bill aimed to boost worker rights and unions.

The Senate will vote on various Biden administration nominees. The House is expected to pass an immigration reform bill and the Violence Against Women Act, among other bills.

COVID Relief Bill.

President Biden signed the COVID relief bill into law yesterday after the House passed the bill the Senate had approved last weekend. This is a major victory for both President Biden and congressional Democrats. Significant federal money will soon begin to flow to lower- and middle-income taxpayers and the unemployed. It will take longer (months, if not years, in some cases) for funds provided in other parts of the bill to be deployed. History will render a better verdict on the impact of this bill than the talking heads providing partisan commentary on the different cable stations today. Will the bill help usher in a recovery that dovetails with a gradual reopening of the economy as more and more of the population gets vaccinated? Or will it unleash harmful increases in inflation and interest rates by overheating the economy with deficit spending? We don’t know, but the answers – if they are known by then – will have a major impact on the looming 2022 mid-term congressional elections.

COVID Relief Bill Summary.

Here is a summary of the COVID relief bill from the Senate Budget Committee and written by the committee’s Democrats.

Next Up: Infrastructure. 

Congressional Democrats and President Biden have an infrastructure bill as the next big item on their to-do list. While Democrats and Republicans agree on the need for major investments in infrastructure, they have very different views on how to pay for such investments. This disagreement, which has prevented any meaningful infrastructure bill from being enacted into law for many years, isn’t close to being resolved. Democrats are looking at a variety of sources of funding to help pay for infrastructure, including an expansion of the current gas tax, a new carbon tax and general tax increases on higher-income individuals and businesses. They also may opt to not pay for it all by adding the expenses to the deficit and debt (as the COVID bills were). Our view is that they will use a combination of these options, including deficit spending. Over the next few weeks, supporters will highlight the need for greater infrastructure investment and its potential for job creation. The more unpleasant discussion of how to pay for more infrastructure will come later after the public relations campaign has been made to build more popular support for this spending.

Green Energy. 

We don’t know yet how the infrastructure bill will be paid for, but it is nearly certain that it will contain substantial green energy investments, tax incentives and mandates. Tax credits for the purchase of electric cars and investments into public charging stations will be prominent parts of the bill. A carbon tax proposal also may come into play. The American Petroleum Institute, a top trade association representing major oil and gas companies, recently opened the door to the concept of such a tax, which will lessen opposition to it from those in the fossil fuels industry. Green energy will be an important part of the Biden administration’s climate change agenda and the infrastructure bill is likely to be the vessel through which it will try to get many of its proposals passed. Looking ahead to a potential Senate vote, it is likely that the votes of all 50 Democratic Senators will be needed for the bill to pass. This will make the position of Senator Joe Manchin (D-WV) crucial. Senator Manchin is a staunch defender of the fossil fuels industry and will be a key determinant of the size and scope of green energy provisions in the infrastructure bill.

Border Security. 

As the number of undocumented immigrants continues to grow along the southern border, the Biden administration is confronting significant policy and political challenges. President Biden has scrapped just about all of President Trump’s measures on illegal immigration, including one that sent asylum seekers to Mexico until their cases are heard. However, he has yet to replace them with policies to effectively slow the flow of immigrants from the south. Any solutions will have to come from the administration, since Congress is deadlocked on immigration policy. It seems that this problem will get worse before it gets better and will be a key test for the President over at least the coming weeks and months. The administration this week asked Congress for more money to address the deluge at the border, but this request won’t be approved until there is clarity over what the President’s policy response will be. Immigration issues – particularly those around illegal immigration – always seem very controversial with voters all over the US, and this latest challenge is no different.

Minimum Wage Increase Still Alive, Maybe. 

Although the latest COVID relief bill did not contain a minimum wage increase, as many House and Senate Democrats had hoped, the issue is still alive with some Senators. A handful of Senators from both parties are discussing the possibility of a smaller increase to somewhere between $10 and $11 per hour instead of the $15 per hour originally proposed in the COVID bill. Currently, 31 states have laws that allow workers to be paid less than $10 per hour. Not surprisingly, political considerations will likely determine whether the smaller increase has a chance to advance in the near future. Senate Republicans want to pair any smaller increase with stronger protections to ensure businesses don’t hire undocumented workers, which may be a non-starter with Democrats. Democrats who have strongly advocated a $15 per hour rate may view a smaller increase as insufficient. They may calculate that they could pass a $15 per hour rate if the Senate scraps the filibuster later this year or next, so why settle on a smaller rate now?

Competition Policy. 

A Senate Judiciary panel yesterday held an initial hearing on business competition and antitrust reform. The subcommittee chairwoman, Senator Amy Klobuchar (D-MN), introduced legislation last month that would boost funding for antitrust enforcement and give regulators greater authority in blocking mergers. Senator Klobuchar’s counterpart in the House, Congressman David Cicilline (D-RI), issued a report last year that contained more aggressive proposals (including recommendations to break up big tech companies). While there is bipartisan interest in Congress in this area, Republicans object to Democrats’ more far-reaching proposals. The Department of Justice (DOJ) and the Federal Trade Commission (FTC) have been conducting their own investigations and have brought lawsuits against major tech companies in recent months. At this time, the Biden administration is beginning to assemble its team. It has brought in one big tech critic as an advisor in the White House and is expected to name another to the FTC. It has yet to name nominees for a third (and likely decisive) Democratic commissioner on the FTC and for the anti-trust head at the DOJ. Regardless of whether Congress can come together in passing a bipartisan bill, these positions will be critical in determining exactly how aggressive a posture the Biden administration will take on big tech companies and on anti-trust policy more generally.

US Focus on Asia. 

Secretary of State Tony Blinken and Defense Secretary Lloyd Austin will travel together to Japan and South Korea next week to discuss national security issues with leaders there. This will be the first global travel of any Biden cabinet official and underscores the importance the US attaches to its top allies in the Pacific as well to the region itself. It’s a little surprising that the “first visit” is not with European allies, but with the more risky state of COVID there, we think the US officials don’t believe the timing for that visit is right. A side visit with Chinese officials is also on the agenda next week (in Alaska), but it will not involve serious negotiations on key issues. How the Biden administration will address the wide range of US-China policy and political challenges is still a subject of discussion here in Washington, and we don’t expect next week’s meetings in Alaska to reveal much about the President’s specific priorities. We expect a more robust outline of the President’s overall priorities with China to be provided as Commerce Secretary Gina Raimondo gets settled into her job (she was confirmed by the Senate last week) and US Trade Representative nominee Katherine Tai is approved by the Senate in the next couple of weeks.

The New Senate GOP. 

Earlier this week, Senator Roy Blunt (R-MO) announced he would not seek re-election in 2022. While the retirement is unlikely to put the Missouri Senate seat in play (Trump won the state by 15% in 2020), it is nevertheless significant. Senator Blunt is already the fifth Senate Republication to announce his retirement. Even without taking into account the possibility of other retirements or any election losses by Republication incumbents, at least ten percent of Senate Republicans are guaranteed to turn over following the 2022 elections. The retirements of Senators Blunt (R-MO), Richard Burr (R-NC), Rob Portman (R-OH), Richard Shelby (R-AL) and Pat Toomey (R-PA) are also significant because of the collective experience and institutional knowledge that they will be leaving behind. The five senators have a combined 128 years in Congress and have served an average of 19 years in the Senate. Whether this loss of experience is a positive or a negative is an individual judgment, but it’s undeniable that the Senate Republican caucus, which will have a maximum of only 12 members with two terms or more of Senate experience, will be very different on swearing-in day of 2023.