WASHINGTON — The bipartisan shrug that greeted the news that the Senate’s infrastructure bill contains $256 billion worth of deficit spending marked a new moment in the post-Trump era, one that highlighted how deficits matter only situationally to Republicans and inflation fears ebb and flow, depending on the politics of the issue.
With a key test vote on the infrastructure measure expected around noon on Saturday, the Republican Party’s blasé attitude toward deficits will last only a matter of days.
By early next week, with the bill likely passed, Democratic leaders will have to decide how to deal with a looming crisis: the approaching statutory limit on how much the Treasury can borrow to finance the government’s debt.
They will also be pressing for Senate passage of a budget resolution intended to speed approval of $3.5 trillion in spending on health care, education, child care, immigration and other social policies, much of which would be paid for by tax increases on corporations and the wealthy.
And the muffled murmurs from Republicans over infrastructure costs will give way to howls of outrage.
“That will be an extraordinary debate of enormous dimension,” Senator Mitch McConnell of Kentucky, the Republican leader, predicted. “I can’t think of a single issue that underscores the difference between the two parties more than the reckless tax-and-spending spree that we’ll be dealing with here in the next week or two.”
In the past, the Congressional Budget Office has loomed like the sword of Damocles over delicate legislative compromises, a nonpartisan scorekeeper whose rulings on the nation’s finances and fortunes could sink or propel hard-fought policy measures. The budget office’s prediction that successive Republican measures to replace the Affordable Care Act would cost tens of millions of Americans their health insurance effectively doomed those efforts.
But the 10-year price tag the budget office put out this week for the bipartisan infrastructure bill changed no minds, even though it reported that the measure would tack a quarter trillion dollars to an already swollen sea of federal red ink. Many Republicans are beginning to regard spending on highways, bridges, rail lines and broadband the way Democrats have for years — as a long-term investment in the nation’s economic future that need not cause short-term deficit heartburn, especially when borrowing costs are at rock-bottom rates.
The federal budget deficit has reached staggering proportions, driven by successive pandemic rescue packages, an economic collapse and the huge 2017 tax cut signed by President Donald J. Trump. Without counting the costs of the infrastructure or social policy bills, the C.B.O. had projected the deficit for the fiscal year that ends Sept. 30 would reach $3 trillion; the federal debt held by the public will exceed the size of the entire economy. Within 10 years, that debt is poised to equal 106 percent of the economy, the highest level in the nation’s history.
Despite a resurgent coronavirus, the economy appears to be recovering. Employers added 943,000 jobs in July, the Labor Department reported Friday, and Jerome H. Powell, the Federal Reserve chair, acknowledged in late July that inflation remained a real risk in the near term
“We think that some of it will fall away naturally as the process of reopening the economy moves through,” Mr. Powell said of inflation, before adding, “It could take some time.”
But the federal spending of the Trump era appears to have given his party permission to put austerity in the rearview mirror, at least for some measures.
In a statement on Thursday in response to the C.B.O. price tag, Senators Rob Portman, Republican of Ohio, and Kyrsten Sinema, Democrat of Arizona, the two lead negotiators on the infrastructure deal, defended the bipartisan legislation as “a historic investment in our nation’s core infrastructure needs.”
That rationale reflected longstanding arguments from liberals, which Mr. Portman and Ms. Sinema decidedly are not.
“Almost every state, county and private-sector organization pays for ongoing operating expenses with ongoing revenue, and pays for physical infrastructure with debt financing,” Senator Brian Schatz, Democrat of Hawaii, said on Friday. “Anything that provides value over a long period of time should be paid for over a long period of time. This isn’t some wacky new political philosophy; it’s just smart money management.”
And because Democrats have vowed to pay for their social policy spending with tax increases and other measures, such as allowing Medicare to bargain for lower drug prices, that legislation will not increase the deficit, said Senator Chris Van Hollen, Democrat of Maryland and a member of the Senate Budget Committee.
“We are going to be paying for the American Family Plan; we are going to offset those investments, and yet you’re going to have Republicans again shedding crocodile tears over the deficit,” he said.
Treasury Secretary Janet L. Yellen is undergoing her own reappraisal of deficit spending. In recent years, she expressed concern about the nation’s fiscal situation, even suggesting that raising taxes and cutting retirement spending would be wise. But since becoming the Treasury chief, she has espoused the view that, with interest rates at historic lows, now is the time for big spending.
“There is a good faith discussion about how much spending is too much,” Ms. Yellen said during a speech in Atlanta this week. “But if we are going to make these investments, now is fiscally the most strategic time to make them.”
Those arguments are hurtling toward a separate but politically connected issue: the government’s statutory borrowing limit. The official deadline to raise the debt limit came and went at the beginning of the month, forcing Ms. Yellen to employ “extraordinary measures” to keep the nation from defaulting on its debt and provoking a global economic crisis.
Biden’s 2022 Budget
The 2022 fiscal year for the federal government begins on October 1, and President Biden has revealed what he’d like to spend, starting then. But any spending requires approval from both chambers of Congress. Here’s what the plan includes:
- Ambitious total spending: President Biden would like the federal government to spend $6 trillion in the 2022 fiscal year, and for total spending to rise to $8.2 trillion by 2031. That would take the United States to its highest sustained levels of federal spending since World War II, while running deficits above $1.3 trillion through the next decade.
- Infrastructure plan: The budget outlines the president’s desired first year of investment in his American Jobs Plan, which seeks to fund improvements to roads, bridges, public transit and more with a total of $2.3 trillion over eight years.
- Families plan: The budget also addresses the other major spending proposal Biden has already rolled out, his American Families Plan, aimed at bolstering the United States’ social safety net by expanding access to education, reducing the cost of child care and supporting women in the work force.
- Mandatory programs: As usual, mandatory spending on programs like Social Security, Medicaid and Medicare make up a significant portion of the proposed budget. They are growing as America’s population ages.
- Discretionary spending: Funding for the individual budgets of the agencies and programs under the executive branch would reach around $1.5 trillion in 2022, a 16 percent increase from the previous budget.
- How Biden would pay for it: The president would largely fund his agenda by raising taxes on corporations and high earners, which would begin to shrink budget deficits in the 2030s. Administration officials have said tax increases would fully offset the jobs and families plans over the course of 15 years, which the budget request backs up. In the meantime, the budget deficit would remain above $1.3 trillion each year.
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