John Heasley

John Heasley
TBA General Counsel

A Congressional agenda full of spending, taxes and new regulators

The pressure will be on regulators to accomplish what the legislative branch could not. 

The Senate recently passed a bipartisan $1.2 trillion infrastructure spending bill that has been sent to the House. (This is on top of the $1.9 trillion COVID bill passed with no Republican votes using the budget reconciliation process.) The Congressional Budget Office says that the infrastructure bill is $256 billion short of paying for itself. The House is expected to make “greener” changes such as more money for high-speed rail and electric vehicles. Nine Congressional moderates, including three south Texans, have written Speaker Pelosi to tell her that they want the infrastructure bill to be considered by the House before the massive $3.5 trillion “human infrastructure” bill is considered. This presents a dilemma for Pelosi, who only has a four-vote majority, because she has around 100 self-styled progressives to whom she has promised that the two bills will be considered simultaneously.

A more pressing concern for Congress is the need to vote on extending the debt limit, which expired in July, to pay for the government and maintain the credit rating. Democrats could have placed the extension in the COVID bill, but they want to put political pressure on Republicans. GOP members would have supported an extension if it was based on the five bipartisan bills of 2020, but they balk at supporting additional borrowing to pay for a combined $5.4 trillion in new spending. The U.S. already pays $400 billion annually in interest on our debt, 6% of federal spending. If interest on the 10-year Treasury rises to 5%, interest costs will be over $1.4 trillion annually. Many economists believe current inflation trends are not temporary and that massive federal spending adds fuel to the fire. 

The $3.5 trillion human infrastructure bill is an extremely ambitious plan that goes beyond the Great Society programs of the 1960s and approaches the breadth of FDR’s New Deal. Biden’s “build back better” proposals attempt to address rising economic inequality and climate change. 

Senate Budget Committee Chairman Bernie Sanders told the Washington Post that he wants to confront “the existential threat of climate change and the need to create many millions of jobs, decent paying jobs.” They want universal pre-K for all three and four-year-olds, additional direct payments to families with children, paid family leave and health care expansions for Obamacare and Medicare.

At what cost? The two reconciliation bills will raise the national debt to over $33 trillion in fiscal 2024 and $45 trillion by 2031, even with additional tax revenue. 

How do they propose to pay for this? Taxes will increase for incomes over $400,000 (they will probably lower this threshold) and corporate taxes will go up. They believe they can cut prescription drug costs. A particularly worrisome proposal is to require banks to report all inflows and outflows from customer accounts.

What are the political prospects for these spending bills? The party that doesn’t control the White House almost always gains seats in midterm elections. There is a good chance that a four vote majority in the House and a fifty-fifty Senate will change to Republican control of both chambers. Expect a mad dash to pass spending legislation in order to curry favor with voters that support redistributive programs. 

Meanwhile, after the spending frenzy, the Senate still has to confirm a number of Biden appointees. Among them are new people to run the OCC, the CFPB and four to serve on the Federal Reserve Board. The initial nominee for the OCC was blasted by progressives as not being liberal enough, which is an interesting criticism for a fellow that was one of the architects of the Dodd-Frank Act. There are now six people under consideration for the job, most with varying degrees of hostility toward regulated banks. Whoever is confirmed to run the CFPB will most likely take the aggressive approach that Richard Cordray took in the Obama era. There was talk of replacing Powell as Fed Chairman but the immigration and Afghanistan debacles work in Powell’s favor because of the perception of steadiness at the Fed. Governor Lael Brainard, a proponent of climate change regulation in banking, is being discussed as a potential Chair should Powell be replaced or a Vice-Chair if Powell stays. Fed nominees can be expected swear fealty to an agenda that addresses Biden administration social issue priorities.

With narrow Democratic Congressional majorities it is unlikely that major progressive legislation can pass. The 60 votes needed to pass a bill in the Senate is the major obstacle. The pressure will be on regulators to accomplish what the legislative branch could not.