Only Hope for Infrastructure: Fuzzy Math

October 4, 2021

4 minute read

NO DEAL IN SIGHT: When Nancy Pelosi proclaimed this weekend that the new deadline for an infrastructure deal is Oct. 31, our immediate reaction was: What Year?

DEMOCRATS ARE SO BITTERLY divided, with fresh demands daily, that there’s a real chance that both infrastructure bills could go down in flames.

THE MEDIA IS FOCUSING ON THE TOP-LINE NUMBER for the social spending bill; will it be as high as $2.3 trillion? As low as $1.5 trillion? Probably a little under $2 trillion, but debate over the top-line figure obscures the biggest issue — what could survive in a final bill?

WE TALKED WITH A CONGRESSIONAL SOURCE this weekend who predicts all sorts of creative accounting that would lower the bill’s cost by making key provisions last for only two or three years, not ten.

DEMOCRATS MAY CYNICALLY PASS extensions of programs like the child tax credit, only to “sunset” many of these provisions before the 2024 election, threating to kill benefits that the public may get used to. Or many of these programs may not begin until later in the decade. Fuzzy math, including “dynamic scoring,” is virtually certain.

THE OTHER OBVIOUS SOLUTION is to give huge haircuts to programs such as universal pre-kindergarten, free child care, affordable housing, etc. Bernie Sanders probably would not get much of his proposal for dental, hearing and vision aid.

AS THESE DIFFICULT CHOICES LOOM, some Democrats like Joe Manchin will increase their demands. Manchin already has insisted on forcing the Fed to speed up its tapering; now he wants to preserve benefits for natural gas producers, and he insists on inclusion of the anti-abortion Hyde Amendment, which could blow up the entire bill.

THIS MEASURE IS SO CONTROVERSIAL that the longer it languishes, the tougher it will be to pass. And a delay of several more weeks would give lobbyists more time to add (or delete) provisions in the tax portion of the bill. The lobbyists apparently have already killed a crackdown on carried interest, as usual.

BOTTOM LINE: Democrats are determined to get something, and they still have a chance. But if this falls apart, it could actually be a positive story for the financial markets because no deal means no new taxes.

COULD A BREAKDOWN REALLY HURT THE ECONOMY, which already is awash in fiscal and monetary stimulus? Covid appears to have turned a corner; the overall economy may not need much more stimulus. There’s a case to be made for a basic infrastructure bill, but a massive social spending bill — with fuzzy math — could sink from its own weight.

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This post was first published at the AGF Perspectives Blog.