‘Nice guy’ Biden goes for broke
REPUBLICANS ARE SUFFERING FROM A TRUMPIAN HANGOVER FOR WHICH THEY HAVE YET TO DISCOVER A CURE.
Buoyed by the legislative success and public popularity of his $1.9-trillion COVID relief package, U.S. President Joe Biden is taking an even bigger leap into infrastructure, research and development, social policy and a greener economy, along with tax increases for corporations and wealthy Americans intended to pay for a significant share of the expenditures. His campaign motto of “build back better” is beginning to look more like “go big or go home.”
It is a major political gamble by the president, especially since Democrats hold slender majorities in the House and Senate. While the administration anticipates congressional approval by Memorial Day, the new package will not pass as easily as the COVID relief bill that delivered $1,400 to every American. Extensive debate and some compromises seem inevitable.
The initial $2-trillion tranche of the “jobs and families plan” includes $621 billion for customary infrastructure (roads, bridges, ports, etc.), $580 billion to boost manufacturing, $400 billion to increase care for the aging and disabled, $174 billion to subsidize electric vehicle production and $165 billion to modernize schools and early learning facilities. To offset these expenditures, the plan proposes an increase in the corporate tax rate from 21 per cent to 28 per cent, along with higher taxes on foreign earnings and on individuals earning more than $400,000 annually.
The second tranche, an additional $1.5 trillion, also stretches well beyond any normal definition of “infrastructure,” focusing on childcare, health measures enabling greater unionization of health workers and more to fight climate change. Inevitably, both packages will be sliced and diced. Democratic Sen. Joe Manchin has already signalled his preference for an increase of the corporate rate to 25 per cent and his vote could determine the outcome.
While estimates of employment gains from the POST-COVID recovery that’s already underway stand at 19 million, the administration acknowledges that only 2.7 million will be generated by the “jobs and families” packages. Biden will be helped by the fact that the Republicans are suffering from a Trumpian hangover for which they have yet to discover a cure. Some openly acknowledge that “Biden is difficult to attack because he is such a nice guy.”
Republicans offered a slimmed down $568-billion version focused exclusively on roads, bridges, airports, ports, broadband and clean water, to be paid for by those using the infrastructure and unspent pandemic relief funds. To avoid being left out entirely, as they were on the popular COVID relief package, they hope to compromise on elements that could win some Democratic support, while staunchly opposing tax increases and what they see as expensive green boondoggles.
Several Democrats quickly panned the Republican offer as “far too small.” Nonetheless, there is scope for wrangling because some elements of Biden’s human infrastructure package may not qualify for “reconciliation,” which requires only 51 votes in the Senate.
Americans have craved infrastructure spending for more than 30 years because their roads, bridges, rail lines and water works are crumbling. Yet, even with political will, plans to improve infrastructure are inevitably hobbled by a myriad of red tape, regulations, permitting requirements, public consultations and environmental considerations at all levels of government.
“Shovel ready” projects ordinarily take six to 10 years just to get approved. Autocracies like China do not have that handicap and yet there is no indication that the Biden administration has a solution to streamline the process. In some ways, the Democrats are co-opting Donald Trump’s “Make America Great Again” nationalism with their own brand of infrastructure and manufacturing initiatives, along with a still-to-come intensification of Buy America protectionism — a prospect that should concern all Canadians.
The infrastructure, green energy and social policy rebuild reflects a return to Big Government and that inevitably brings more scope for malfeasance and corruption. Vast amounts of public spending will certainly give lobbyists a field day. The return of “earmarks,” which were banned by Republicans in 2011 over concerns about corruption, give more leeway for add-ons by individual congressional representatives and will only make lobbying tactics easier and more lucrative.
A major unknown from unprecedented surges of public spending are impacts on the deficit and inflation. Former treasury secretary Larry Summers, a Democrat, fears that the expenditures planned are excessive.
The administration seems serious about insulating supply chains from China with $50 billion for subsidies aimed at stimulating domestic manufacturing of computer chips and semiconductors. Although American companies pioneered semiconductors and still lead on chip design, many have outsourced chip fabrication, mostly to Asia.
According to the Boston Consulting Group, America’s share of global chip making will slip from 37 per cent in 1990 to 10 per cent by 2030. It will take time for new investments to produce a more secure supply chain. Meanwhile, the semiconductor shortage is exacerbating the rivalry between the United States and China.
China has the most lavish incentives for semiconductor manufacturing and will not stand still while the U.S. catches up. Its increasing threat to Taiwan is one of the most serious security challenges facing America today. Taiwan supplies 22 per cent of the world’s chips and 50 per cent of the most advanced chips.
Biden believes that huge plans for public investment will bolster U.S. efforts to compete successfully with China. He contends that the U.S. “stands at the crossroads of a global choice between democracies and autocracies” and that rebuilding U.S. infrastructure is ultimately about proving that democracies can “create and deliver for the people.”
The president has steadfastly avoided getting drawn into the self-induced crisis of asylum seekers and unaccompanied minors surging to record levels across the southern border. His administration sheepishly reinstated patches to holes in the border wall that they had fiercely opposed.
The Trudeau government is trying to emulate some of Biden’s “build back better” slogan. (Several Democrat advisers attended the recent Liberal virtual convention.) Yet, as the auditor general indicated in her most recent report, comparable spending on industrial innovation in Canada has fallen well short of its goals.
Having wallpapered the country for more than a year with borrowed money and with $475 billion more deficit spending planned in its recent budget, the Canadian government is retaining popular support despite its incompetent management of the vaccine rollout and simmering scandals such as flagrant misconduct in the military and dubious WE Charity expenditures.
Biden is going for broke on his domestic agenda and the political risks for him are high. Political success will be determined by the ultimate size, shape and timing of whatever legislative package he is able muscle through Congress and whether it will show results. Finesse is rarely the mainspring for political discourse in Washington.
Another legislative success would help Biden in the 2022 elections and may also help bolster America’s POSTCOVID economic recovery. That and tangible signs of a more competitive, more confident America would be good news for all of America’s allies. A retreat into more customary Washington gridlock would have the opposite result, most particularly for the Biden presidency.