Like no business I know: Speaker Pelosi outlines the intense week ahead. The House hopes to pass three major pieces of spending legislation this week: It must approve a Continuing Resolution (which currently includes an increase in the debt limit) before the government shuts down on Oct 1. The House Democratic leadership also would like to pass a big domestic spending and tax bill, the Build Back Better Act, through the budget reconciliation process. And they would like to wrap up the bipartisan infrastructure bill. Pelosi still is trying to settle disputes between the moderate and liberal wings of her party.
Everything about it is appealing? If the debt limit is not increased, the government would lose its ability to borrow between Oct. 15 and Nov. 4, according to updated estimates from the Bipartisan Policy Center. “The U.S. government risks missing or delaying critical bills that will come due in mid- and late-October that millions of Americans rely on, from military paychecks and retirement benefits to advanced child tax credit payments,” said Shai Akabas, the center’s director of economic policy.
Everything the traffic will allow. Back in 2013, the Federal Reserve officials developed a crisis management playbook in the event of federal default on its debt due to Congressional inaction. The Wall Street Journal reports (paywall) on meeting transcripts from October of that year, noting that the playbook may be dusted off soon. Options include having the Fed purchase on the open market Treasury securities in default and selling Treasuries it owns to counteract potentially severe strains in financial markets. However, Fed Chairman Jerome Powell said, “No one should assume the Fed or anyone else can fully protect the markets or the economy in the event of a failure.”
Nowhere could you get that happy feeling, when you are stealing, that extra bow. TPC’s Howard Gleckman offers a spoiler alert to this week’s drama: “The infrastructure bill will pass because, let’s face it, every politician loves nothing more to cut a ribbon on a local public works project…The big social spending and tax hike measure will pass because Democrats cannot afford for it to fail….The federal government won’t shut down, at least not for long, in the midst of a pandemic. And the nation’s borrowing authority will be increased because it must be.” Why all the drama and doom-saying, then? Howard says don’t worry: “They are just part of the show.”
Enough singing, back to tax policy: Low interest rates have implications. A new paper presented at the National Bureau of Economics Research conference by Berkeley professor Alan Auerbach and TPC’s Bill Gale examines the implications of sustained low interest rates for tax policy. Bill explains the paper’s conclusion: “Income taxes generally burden capital more heavily and are more progressive than consumption taxes. Low interest rates reduce the importance of the differences between the two taxes.”
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