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President Biden's budget: A look at Congress, the economy, and rebuilding after the pandemic

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Yahoo Finance anchor Alexis Christoforous is joined by BPC President Jason Grumet and Senators Pat Toomey (R-PA) and Chris Van Hollen (D-MD), followed by a panel of policy experts to discuss taxes, the labor market, infrastructure, debt, deficits, and the Biden administration's plans over the coming months

Video Transcript

ALEXIS CHRISTOFOROUS: Welcome, everyone. I'm Alexis Christoforous, and this event is a co-production of Yahoo Finance and the Bipartisan Policy Center. Our subject today is President Biden's budget and what's on Congress's plate when it comes to economic policy. We have got a great lineup for you over the next hour, including Senators Pat Toomey of Pennsylvania and Chris Van Hollen of Maryland. They're going to be coming up shortly. But first, I want to hand things over to the founder and president of the Bipartisan Policy Center, Jason Grumet, for some opening remarks. Good morning, Jason.

JASON GRUMET: Good morning, Alexis. And always a pleasure to be here with Yahoo Finance. And it's a really busy day. I think that I'm most interested in this conversation because we're at a really critical inflection point. We are moving, thank goodness, from emergency to recovery. And the question that I'm interested in talking about is, what does the nation do about this, that Congress, with leadership from folks like Senators Toomey and Van Hollen, have some remarkable, actual bipartisan legislation that started a whole host of new initiatives.

Some of them might be Evergreen. Paid sick leave is something and, I think, child tax credits. There's a desire to maybe move some of those forwards. Some of them are maybe overstaying their welcome, like the unemployment insurance benefits that people are concerned is depressing labor participation. And I think it's all under this umbrella of the Biden administration having about a $6 trillion ambition for more.

And the Bipartisan Policy Center's spidy senses-- there might be about a $1 and 1/2, $2 trillion capacity. So there's a lot of challenges around prioritization. And so in the spirit of the fierce urgency of pragmatism, which is our tagline, really delighted to be here with you and Senator Toomey.

ALEXIS CHRISTOFOROUS: All right, well, thanks a lot, Jason. And we are honored to bring in Senator Pat Toomey now, into our conversation. Lots to get to here. Of course, Toomey has represented Pennsylvania in the US Senate since 2011, and he is currently the ranking member on the Senate Banking Committee. He also sits on the Senate Finance as well as the Senate Budget Committee, which is particularly relevant for our conversation today. Senator, thank you so much for joining us.

PAT TOOMEY: Thanks for having me.

ALEXIS CHRISTOFOROUS: So I want to start with some big economic issues that are front and center right now for Congress. The Biden-Harris administration released its fiscal year 2022 budget a few weeks ago. I know that you take issue with many of the proposals there. But are there provisions that you could support? Are there starting points there for bipartisan collaboration?

PAT TOOMEY: Well, I think we need to look at the big picture here, and fundamentally and structurally, the Biden administration is really attempting to make some pretty transformative changes. And what I'm talking about is a very dramatic increase in the size and the scope of the federal government, in its role in our economy and its role in people's lives. You look at their spending level, which, in recent decades, has averaged something like 21% of GDP. They want to take it up to 25% of GDP. That's a very big structural increase.

And much of it is about just the government paying for services for the middle class, making the middle class dependent on government, for whether it's child tax credits, daycare credits, expanding Affordable Care Act to make more middle income people eligible for a paid family leave, free college. You know, it's this whole raft of programs where the government is saying, hey, don't worry, you're not responsible for these things. We'll take care of them. And we'll make a rich guy pay for it. Don't worry. You won't have to pay for it either.

This is new. This is different. And it's very problematic for those of us who believe in a limited role of government, a role for the government as a safety net but not this massive redistribution of wealth. So fundamentally, the Biden budget goes very much in the wrong direction in my view. I would also-- I think it's really also important to remind everyone, before the pandemic hit-- that's not decades ago. That's just like a year and a half ago-- we had the best economy in 50 years.

In the wake of the tax reform that we did and the regulatory relief that we provided, we had very strong economic growth. We had record low unemployment. We had all-time record low unemployment for African-Americans, Hispanic Americans, many other subsets of our country's population. We had wages growing, and they were growing fastest for the lowest income Americans. So we were narrowing the income gap.

This really-- it's the best economy of my lifetime. I would think we would want to get back to the best economy in, say, 50 or 60 years. And the Biden administration takes us in the opposite direction. So there's a very big gap between our world views.

JASON GRUMET: Senator, I think that's a really good frame for what I know is going to be the challenge around what the administration's called the care economy. But let's go to a place where there's a little more possibility. I think infrastructure, physical infrastructure investment, it's the best idea that hasn't happened in a decade. The Senate now, gang of 10-- if you want to work together, you have a gang. It's tough business. And so the gang of 10, they've said they've come out with a deal. To me, it looks more like kind of a framework.

But the framework, as I understand it, is basically to roughly double investments in physical infrastructure, about a trillion dollars of spending over five years. It seems like it's essentially surface transportation plus broadband and maybe a little more. Just what are you-- what's your thought? Is that a direction that you think you could be supportive of? And then maybe we'll drill down a little bit.

PAT TOOMEY: Yeah. So I'm open to that. And I'm in the process of evaluating it. You know, there's a lot of details are still missing. And that's OK. That-- we can get to that. But in principle, I have not rejected this out of hand, and the reason is because I think it might be compatible with three fundamental principles that I think we should be following in a infrastructure bill. First, something you alluded to, it should be infrastructure.

And we know infrastructure is not actually child care. That is a different thing. It's not that it's not an important conversation, but it is a different conversation. So I want to focus on the platforms and systems that we use to move people and goods and services throughout our economy, roads and bridges and highways and waterways and airports and those sorts of things. So that's number one, real physical infrastructure. And I think that, for the most part, that's what this bipartisan group has focused on.

Number two, we should not be undoing the tax reform that helped us get to the best economy of my lifetime. And to their credit, this bipartisan group has not proposed undoing that tax reform. And then finally-- and I think this is important. And this is one that I've got to really evaluate. But I believe-- I know that there are many hundreds of billions of dollars of money that was approved over the course of the last year or so in the context of the COVID pandemic and the economic lock-downs, it was approved, but it hasn't been spent.

We know, for instance, that most states, the vast majority of states, in fact, are absolutely awash with cash. They ended up with a record amount of tax revenue collected in 2020, and then they got hundreds of billions of dollars from the federal government on top of that without really having a lot of extraordinary expenses. So my point is, the best way to pay for this big plus up in infrastructure that is contemplated is to repurpose this money, to take this money that we thought might be necessary for COVID or for-- to drive an economic recovery. Clearly was not. Won't otherwise be spent four years. Let's use that now for something on which we all agree and that would be infrastructure.

JASON GRUMET: So let me ask you a follow up, and I'll kick it back to Alexis. I think you're speaking about this transition from kind of emergency to recovery, and we will put the question to Senator Van Hollen, about whether some of those resources could be repurposed for the recovery moment.

I want to come back to something you said at the beginning, which is, what is infrastructure? Everyone's been putting whatever they want after the word infrastructure. And I think we know that you kind of know it when you see it. The issue that seems like it's at odds right now is whether clean energy comes into the physical aspects of things like, you know, transmission and the opportunity to create electrification infrastructure.

The argument right now, as I hear it, is the folks-- progressives are saying there's got to be a climate infrastructure piece to this. It's not going to be a carbon tax. It's not going to be a regulation. But would you and do you think Republicans would be willing to make more investments in energy infrastructure, to kind of create the foundation for that long-term decarbonization? Could that find its way into your definition of scope?

PAT TOOMEY: You know, I try not to say what I could never support, but I would point out that there's a tremendous amount of infrastructure spending happening in the private sector in this space. And there's no lack of funding available. So, you know, when-- in Pennsylvania and up and down the Atlantic seaboard, Wawa is an enormously popular company. In Western Pennsylvania it's Sheetz. But they do a fabulous job providing a convenience store basically, food and gas pumping.

And guess what? Their new facilities, the vast majority of them, also have electric charging stations. They don't need the government to give them the money to do that. They're just doing that. That's just an example. There are many like it. But I think that we don't need to replace the funding that's available for the private sector.

It's a little more difficult to get the private sector to resurface an existing road where you don't have a toll, you don't have any mechanism for the private investment to be recaptured. So I get the federal role in those kinds of shared infrastructure platforms. But a lot of what our Democratic colleagues want to do is just use federal money that will just inevitably replace what would otherwise be spent by the private sector.

ALEXIS CHRISTOFOROUS: Senator, I'd like to turn our attention for a moment to the rising number of ransomware attacks that we have seen hit some critical American businesses this year, including the nation's largest meat processor and that major East Coast oil pipeline. Should the federal government be mandating security standards for the private sector, since it seems like voluntary standards now in place don't seem to be getting the job done in stopping these attacks?

PAT TOOMEY: Well, I think that would be a tricky thing to do, and I'm not sure the federal government knows exactly what to mandate and how it would differ from sector to sector. So right now, for instance, the financial services sector spends a massive-- massive amounts of money, and they repel or manage to defeat thousands, maybe it's millions, of cyber attacks every single day. It's like continuous. They've gotten extremely good at it.

And one of the things that we can do is to make sure that they are able to share best practices among themselves, share information about where these attacks are coming from. But I'm not sure that we would know exactly what to require, frankly. And I'm not sure that what they do is the right approach for, say, the power grid is the right approach for pipeline companies and all the others that we require.

I will say, I think this is a serious foreign policy challenge because we know that there are foreign governments that, if they're not directly sponsoring these attacks, they're certainly tolerating the criminals in their countries who are conducting these attacks. And so this does require a government response. But I would go very cautiously in the direct-- in any direction that would mandate specific approaches.

JASON GRUMET: Senator, if I can jump back in with one more question, we're focused on infrastructure, the crowding out a lot of government attention, but other things are coming. We have a debt ceiling. Our staff believes that it's going to probably be around October 1, right around the beginning of the budget, when the-- Congress is going to be forced to address the debt limit. Are we looking at another end of the year shutdown crisis, or will the kind of debt ceiling detente of the last couple of years help you find a way forward?

PAT TOOMEY: Yeah, so there's not a lot of appetite to have the fight that we have had in previous years. But, by the way, the fight in previous years has often resulted in making some progress dealing with our structural fiscal imbalance. So, for instance, as you know, in 2011 it was a fight over the debt ceiling between Republicans in Congress and President Obama that led to the Budget Control Act. Now, you may not like the Budget Control Act, or you may love it. But the fact is, it imposed a discipline on discretionary spending, when the super-committee failed to reach an agreement on mandatory spending. And it actually curbed spending for a while. And it came about because there was a fight over the debt ceiling.

There were budget agreements under the first Bush administration, under the Clinton administration, that also arose in the context of a debt ceiling increase. So look, I think we have a serious structural imbalance. The Biden administration is proposing a budget that would make it much worse. I think there are actually limits to how much debt we can carry. We're already over 100% of GDP, in terms of publicly held debt.

And, you know, we've been lulled into a false sense of complacency by ultra low interest rates, when interest rates are basically zero. Yeah, it's pretty cheap to carry a massive mountain of debt. I don't think interest rates are going to be zero forever. And if interest rates normalize to anything like what we were accustomed to in-- over most of my life, then we've already got a huge problem just servicing all of that debt.

So I think it's really important that we address these structural issues. And doing it in the context of the debt ceiling increase would make sense to me. That's worked before. Having said that, I'm not sure there's going to be bipartisan support for taking on that challenge. And the most likely outcome, honestly, is that this can gets kicked down the road.

ALEXIS CHRISTOFOROUS: Senator, I want to switch gears for a moment and talk a little cryptocurrency. It's something we've spent a lot of time talking about at Yahoo Finance lately. And I know that recently you came out against proposed legislation around cryptocurrencies. You wrote, in a letter to Treasury Secretary Yellen that it would prove to be a heavy burden on these cryptocurrency firms, and you said it may not actually combat criminal activity. Do you believe that Bitcoin and other cryptocurrencies do need to be regulated? And if so, what might that look like?

PAT TOOMEY: Yeah. So that's a great question, and it's an important one. And I think many of us, myself included, are still wrestling with this. My specific criticism wasn't about legislation. It was a proposed rule making by FinCEN. And my concern about the rule making is, as proposed, as I understand it, it puts more onerous reporting requirements on cryptocurrencies than it does on cash.

And cash is anonymous. And cash is used for illicit purposes every day. We know that. And so it's not clear to me that we should have a regime that's more onerous on these cryptocurrencies than what we have on the fiat currency. And so that was what I was pushing back on.

Intuitively-- and I'm still really trying to explore this and understand this-- but intuitively, it seems to me, comparable kinds of controls on, for instance, anti money laundering requirements, that sort of thing, probably makes some sense. But I want to tread cautiously because I think the underlying technology here, of a distributed ledger, is really, really important, very innovative and is going to lead to really, probably, a revolution in financial services generally and all kinds of services that require record keeping. I don't want to stifle that innovation. So I want to make sure we strike a good balance between minimizing the opportunity for criminality, which there is certainly some, while at the same time maximizing the opportunity for the kind of innovation that will inevitably lead to new and better products and services.

ALEXIS CHRISTOFOROUS: Well, we're all going to be watching to see what comes down the pike for cryptocurrencies, for sure. Senator Pat Toomey, thanks so much for being with us. We appreciate your time today.

PAT TOOMEY: Thanks for having me.

ALEXIS CHRISTOFOROUS: All right, now, from the other side of the aisle, we're joined by Senator Chris Van Hollen. Van Hollen represents Maryland. He's also a member of the Senate Banking and Budget Committees. And Senator, thank you so much for being with us today.

CHRIS VAN HOLLEN: Well, it's great to be with both of you this morning.

ALEXIS CHRISTOFOROUS: I want to start with the-- seemingly, the talk of the town, which is infrastructure. We got now this bipartisan proposal from the so-called gang of 10 that sort of falls somewhere in between the GOP plan and President Biden's plan. What in that proposal can you get behind? Do you think that has the best chance of actually passing?

CHRIS VAN HOLLEN: Well, a couple of things-- first, I have not seen the details or the fine print on that plan. And as of last night, it was still in flux. And so, obviously, I want to take a close look at it. This is what I would refer to as the very, very skinny infrastructure bill. And I think many of us recognize-- and of course, President Biden does because he put forward the American Jobs Plan, the American Families Plan-- that our requirements, our national requirements when it comes to modernizing our infrastructure go beyond this bipartisan proposal.

Though, if this were to move forward, I can say that there are many of us that want assurances, at least from 50 Senate Democrats, that they will join with us in passing a reconciliation measure to address the unmet needs, those portions of our infrastructure modernization plan that are not addressed in the bipartisan proposal and those elements of President Biden's American Families Plan that, of course, are nowhere to be found in this proposal.

JASON GRUMET: OK, let me jump on that because I think the dynamic that you're describing between the regular order process and reconciliation, very complicated. It depends a lot on your kind of compared to what reference point. When we look at the physical infrastructure, traditional core, whatever adjective you want, in the administration's plan, there is about a trillion, a little over a trillion dollars of that physical infrastructure.

Help me understand why moving forward with that proposal, in some people's minds, kind of undermines the opportunity around reconciliation. Why isn't it, hey, let's get what we can get, and then we're going to have a big argument about the other $5 trillion?

CHRIS VAN HOLLEN: Well, I didn't say it undermines it. But I did indicate that those senators who agree that this skinny version of the infrastructure bill does not meet the Biden plan. I mean, you mentioned his sort of traditional infrastructure components, but there-- as you well know, there are other parts of his American Jobs Plan that don't fall into that category. We would just want assurances that at least the 50-- all 50 Senate Democrats support moving forward with a more ambitious plan. And as you well know, reconciliation is a tool that's within the rules of the Senate.

And whether it's on climate change matters, whether it's on the issue of home health care, that President Biden has put forward, or whether it's the other issues related to the American Families Plan, those are all things that we think are going to have to be done through reconciliation. And we just want an agreement that all of this will ultimately come together and pass.

JASON GRUMET: Understood. But let me ask the-- you know, the hardest question we have is paying for things. Senator Toomey made the argument that as we make this kind of transition, as I described it, from kind of emergency to recovery, there are probably some resources on the table, some things that Congress did at a moment of very effective muscular response to crisis, for example, the unemployment insurance plus-up that a lot of governors are now saying they're going to end before the statutory September deadline. Senator Toomey is arguing that we should be able to reprogram a lot of those resources towards now, the next step of recovery.

How do you think about that? I mean, the words claw back conjure a lot of negative imagination, but is there some opportunity to now kind of optimize some of these resources, as the economy recovers, as the vaccine takes hold?

CHRIS VAN HOLLEN: So I heard Senator Toomey primarily mention the funds that have gone to state and local governments. And I can tell you, in talking to people like the mayor of Baltimore City, they have very specific plans and needs for the funds that we provided as part of the American Rescue Plan, for the city. And of course, there are some parameters to those funds. But they're pretty flexible overall. It's not specifically directed, for example, to infrastructure use.

So I do not support the idea of clawing back those funds, which is what it would be, and then restricting the use of those funds to one purpose, when the needs of places like Baltimore City are very varied and very different. And I think all of us agree that one size does not fit all around the country. And that's exactly why we provided cities like Baltimore and other municipalities with that kind of flexibility.

The UI funds, look, I think it's a mistake for many of those governors to terminate the UI early, but that's a separate discussion. We'll take a look at what funds are left over. But just to your point on making sure things are paid for-- because I want to emphasize one thing. I heard my friend, Senator Toomey-- and I-- we worked together on lots of issues like foreign policy and national security. But I do remember, during the Trump administration, they passed a tax cut that disproportionately went to the very wealthy and to big corporations that was totally unpaid for.

And if you look at the four years of the Trump administration, overall, actually, GDP was pretty much on the trajectory of the Obama administration, so were real wages. The one thing that went up was the deficit. Contrast that to the Biden plans. I mean, you may not like-- someone may not like the components of the American Jobs Plan or the American families plan, but he does put on the table pay fors to address that, over a 15-year period. And I would welcome those of-- Republican colleagues who say they're fiscal conservatives to look back at what they did with the tax cuts. And actually, if they believe in paying for things, look at-- let's discuss Biden's proposals.

ALEXIS CHRISTOFOROUS: Senator, I want to get your take on the string of ransomware attacks that have hit some critical American businesses this year. We asked Senator Toomey the same question, and he seemed to think it's not the job of the federal government to mandate security standards for the private sector. But, you know, if you look at the breadth and depth of these attacks, it doesn't seem like the private sector and their voluntary standards are actually getting the job done in protecting this critical infrastructure. So what do you think the answer is? And what role should the federal government play?

CHRIS VAN HOLLEN: Well, I do think this is something we should look at. You may recall, we actually had this debate many, many years ago. I think it was Senator Lieberman who proposed a legislation to establish national standards for things like cybersecurity. Clearly, we have lots of vulnerabilities in the system. We are currently trying to address that by sort of better coordination between the private sector and the public sector.

My State of Maryland is home to the US Cyber Command. And when Cyber Command gets an indication of attacks on US infrastructure, I think the public sector, whether it's Homeland Security, or whoever it may be, tries to alert the private sector and vise versa. But I do think, whether it's set required national standards or a better agreed understanding of what protections private industry needs to take, we need to move forward. Because, of course, when you're talking about infrastructure, like the Colonial Pipeline, like our electric grid, those obviously intersect with a huge public interest.

I would also say, with respect to private companies, I have been pushing for them to require disclosure to the public and to their shareholders when they're-- when they've been under attack. We've had cases in the past where we've also had identity theft, for example, people breaking into the database of companies, and that doesn't get quickly enough reported to the public.

JASON GRUMET: Senator, let me jump back in. And we're bouncing around because it's a target rich environment for big, exciting problems. I want to ask you about housing policy, a tremendous amount of challenges prior to the pandemic, with affordability and homelessness. I think, as an emergency stopgap, the Senate passed an eviction on moratoria-- I'm sorry, a moratorium on evictions, which I believe lapses at the end of this month. You and Senator Young introduced legislation that significantly increase, I think by about 500,000, the number of vouchers that are available for low-income folks, particularly with kids, have access to rental facility, rental apartments.

How is that conversation moving forward? Do you feel like that has the ability to possibly become part of the poor infrastructure debate? These are houses built with cement and brick and steel. Does this flow forward into what you think is reconciliation, just a little bit of your sense about, are we about to face a tsunami of homelessness that we are not prepared for?

CHRIS VAN HOLLEN: Well, I think we're at risk for that. As you said, the current eviction moratorium comes to an end at the end of this month. Congress did provide rental assistance funds to try to help those tenants who have gotten way behind on their rental payments, the opportunity to have them paid. There's still a lot of issues to be sorted out and making sure that works. But even with those funds, yes, there is a risk of eviction, as people have these balloon payments that may come due. So I do think we need to address that potential emergency.

But to your question on the longer term-- and Senator Todd Young of Indiana and I have introduced bipartisan legislation to do exactly what you said, which is to provide lower-income families with a voucher that would allow them and their kids to move to areas of higher opportunity. All the data shows this is a really effective way to help lift people out of poverty, provide more opportunity. And I do hope, in fact, I'm pushing very hard, to have that included as part of the infrastructure plan, which will also include provisions to increase the supply of housing. But I think it also needs to include additional vouchers, in order to help those most in need.

JASON GRUMET: I think I have one more, one more question for you then hand it back to Alexis. And I can't help but come back to the paying for conversation one more time because I think, look, the trend lines are not great. I think Senator Toomey made the argument that we're expanding the spend side to a historically unusual level. You've made the point that the revenue side, since the 2017 tax reform, has been below historic levels. So we see where that's going.

At the same time, we have this idea that we shouldn't impose any taxes on people earning less than $400,000 a year, the administration has come up with. And I understand the premise. The idea that the administration won't contemplate indexing the gas tax to inflation, that that is somehow an affront to the middle class, concerns me, if we think about this, you know, just the gulf here between spending and revenue.

I think progressives want to talk about a carbon tax. Well, that's not-- I mean, if we won't index the gas tax to inflation, carbon tax isn't a serious discussion. So how do you reconcile the focus on trying to impose additional taxes on that 1% but the reality that there's a lot of us left in the 99% who are going to have to be part of the solution? How do we understand that tension?

CHRIS VAN HOLLEN: So just really briefly, with respect to the carbon tax, and I've introduced for years now, a cap and dividend bill, which would actually dividend the proceeds of what would be effectively a price on carbon to every American so that lower income Americans would not feel the cost impact of a carbon fee. So look, what President Biden is saying is pretty clear, is let's look at our current tax code and fix what we've got in front of us. It's clearly already broken in a couple of ways.

One, we know from the IRS commissioner, and this, of course, is the IRS commissioner that was appointed by Donald Trump, that about $700 billion of taxes due over 10 years could be collected with a little more enforcement from people who already owe their taxes. We also saw revealed the other day, that some of the wealthiest people in the country are paying zero income taxes. We also know that corporations that got a great windfall from the Republican tax cut and used a lot of those funds on tax buybacks also park a lot of their profits in tax havens overseas.

So this is why President Biden has proposed increasing the corporate tax, establishing a minimum corporate tax, closing tax loopholes. Those are the things we need to do before we talk about raising taxes on other Americans. And I think the president is right about that.

ALEXIS CHRISTOFOROUS: Senator, I know that the Senate recently passed that US Innovation and Competition Act to boost American R&D and keep us more competitive globally, especially as it relates to China. And that legislation, I know, is now awaiting action in the House. The bill initially had some pretty strong bipartisan support, but I know that you eventually voted against it. What aspects of that legislation do you oppose?

CHRIS VAN HOLLEN: Well, I'm sorry, you've got misinformation. I voted for it. I was a strong proponent of the bill. In fact, a lot of measures that I proposed in legislation, bipartisan efforts are included in that package, including legislation to give the federal government the ability to impose sanctions against companies that mostly, with the help of their governments-- and thinking primarily China here-- engage in serial theft of US technology. And so that's another provision.

Senator Blunt and I established a process by which the National Academies of Science and Engineering will give us regular updates about where we need to be, concentrating US R&D investment. We know many of those areas where we've got to be more competitive, AI, quantum computing, clean energy, battery storage. I mean, there's a whole range of things.

I think this is a very important bill for three reasons. We need to make this investment in cutting edge technologies. Number two, on the foreign policy side, we need to have more tools to address things we're seeing, like China's Belt and Road program, where they're using concentrated economic power to try to export their authoritarian model and clamp down on freedom of the press and freedom of expression. So no, I thought this was a very important bill and enthusiastically supported it.

ALEXIS CHRISTOFOROUS: All right, we're going to leave it there. Senator Van Hollen of Maryland, thanks so much for your time today. We appreciate it.

CHRIS VAN HOLLEN: Thank you. Good to be with you. Thanks.

ALEXIS CHRISTOFOROUS: I want to turn now to a panel that we've gathered, to talk through all that we just heard. We have got Wendy Edelberg, who is the director of the Hamilton Project and a senior fellow at the Brookings Institution. Before that, she was chief economist at the Congressional Budget Office. Also, Gordon Gray is currently the director of fiscal policy at the American Action Forum. And before that, he was a senior policy advisor to Senator Rob Portman and the deputy director of domestic and economic policy for Senator John McCain's 2008 presidential campaign. I want to thank you both for joining Jason and myself today.

Wendy, I'm going to start with you. And there is this central question for US growth right now, and that is, to what extent will inflation be transient or temporary, something Fed Chair Powell continues to say is going to be the case? There are concerns it's going to hinder our recovery efforts by overheating the economy. To what degree do you think the Fed needs to act now and start pulling back and tapering that bond buying program and also starting to raise interest rates? Because some are fearful here, that the Fed is going to fall behind the curve and inflation will get away from it.

WENDY EDELBERG: So we are most definitely in for overheating. I think that that cake is baked. The question is, how can we manage the overheating? So overheating on its own is not necessarily a terrible thing. There are lots of positive side effects of overheating. But we do need to make sure that we manage the slowdown that comes on the other side.

So what I think the Fed should be doing now, along with other policymakers, is strongly signaling to everyone, to set expectations, that this is temporary. This is a temporary surge in economic activity. And that will help to manage inflation expectations. But I think even more importantly, it will help to make sure that households and businesses don't make permanent decisions in response to this temporary activity.

JASON GRUMET: Well, let me jump in and welcome Wendy and Gordon and ask Gordon to jump in on this same question. My frame for this discussion is this transition from emergency to recovery. It's like landing on an aircraft carrier at night in a storm. And so I think-- interested in your thoughts, in terms of what Wendy just responded to, about that pivotal inflation. Maybe we'll also bring in this labor market conversation, about are we creating the right incentives for people to get back into the workforce? But let's talk about this really remarkable moment in economic policy.

GORDON GRAY: Great. And appreciate the question. And thank you very much for having me. Really appreciate the discussion.

And I think you characterized this moment in time correctly, which is very much-- it's going to be a delicate handoff. And I think we should probably all, as policy observers and also, I think, policymakers, should probably have a little humility about their ability to micromanage this transition. And I think that, at least with respect to the first issue that we were talking about, with inflation, you know, there's going to have to be some room to-- for some surprises. And I'm anxious to see what the Fed has to say today, based on some of the more recent inflation data.

But you know, I think-- you know, I think I wouldn't draw a straight line, for example, to some of the more recent upside surprises on inflation to runaway inflation of the 1970s. We're not there yet. And so I think, you know, there's definitely some room to just-- you know, everybody needs to take a breath, recognize that we're in a bit of a delicate transition right now, from a historic economic event, with respect to the pandemic, and then moving into a recovery. And we're going to get some things right. We're going to get some things wrong.

And it's going to be hard to say, pull all of these levers at exactly the right time to the exact right degree to exactly manage this transition. We're just not-- it's not going to happen. And so some things we're-- we're going to get a few things right. And we're going to get a few things wrong along the way. And I think we just need to recognize that. I think that will be important.

JASON GRUMET: And so this--

ALEXIS CHRISTOFOROUS: Part of that--

JASON GRUMET: Go ahead, Alexis.

ALEXIS CHRISTOFOROUS: Obviously, I was going to say, part of that delicate transition puzzle is taxes. And we talked with the senators about this, Jason, that President Biden has pledged that no American making less than $400,000 a year would face higher taxes under his administration. But we already face large deficits and plans for tremendous amounts, record amounts of spending on things like infrastructure. So Wendy, do you think we can realistically stick to President Biden's pledge to not raise taxes on a bunch of Americans, actually the majority of Americans, who do make less than $400,000?

WENDY EDELBERG: As a card carrying economist, I could never sign off on or endorse an arbitrary cut off, like not raising taxes on anybody who makes less than $400,000 a year. That said, I think we can and should do more to make our tax system more progressive. But even within this general framework of trying to keep tax increases sequestered to a certain part of the income distribution, the Biden administration's proposals raise hundreds of billions of dollars and perhaps even as much as $2 trillion over the next 15 years. So it certainly can be done.

JASON GRUMET: But let me get Gordon to this same question. You know, I think when we think about infrastructure, who benefits? All Americans, if it's done well, benefit. There's always been this history of a user fee approach. And then corporations and competitiveness benefit, and so the idea of having the corporations pick up some of the tab makes sense. Gordon, as a conservative, is the Biden administration making a mistake with the kind of almost read my lips pledge, on anything under $400,000? I mean, is it-- can you actually absent-- and this is obviously leading a witness-- can you actually absent 99% of the public from the long-term interests of the fiscal situation?

GORDON GRAY: You know, here's the problem with pledges like that-- and it's that, yeah, an administration can absolutely impose this pledge and go through their entire administration without imposing taxes on a given segment of the population. The problem is, then it's the next administration's problem to pay for those legacy costs. And that's been the tradition of successive administrations over time. And that's why we're standing with a debt of 100% of GDP and that is going up under the CBO baseline.

And it's going up even faster under the president's budget. And it's because everybody seems to do this. Everybody has their own priorities and their pledges. And none of it involves paying for stuff. The whole-- that's my biggest objection to this, which is the Biden administration is proposing significant taxes. You know, given the scope and scale of our budgetary challenge, as a conservative, I recognize that there's no grand bargain or big solution to the federal deficit that probably won't involve revenues.

Problem is, the president's budget is raising significant amount of taxes and then spending it all. You know, if these are supposed to be the easy taxes to raise-- you know, raising taxes on the rich and on corporations and all the taxes that progressives like to campaign on and seem to resonate politically-- they're spending more than they're raising. So we haven't made a dent to the deficit under this budget. In fact, it doesn't go anywhere near as far, in terms of just fiscal consolidation, that we need. This is a president's budget that leaves the debt higher than when it began. And so that's fundamentally my problem, is that we're not paying for any of this stuff.

JASON GRUMET: So Gordon, while you have the screen, and I'd love Wendy to reflect on this also because it's a pretty big idea, this notion of a kind of international minimum tax of 15% as well as a overarching requirement, to make sure some of the big tech companies are paying in. This was an idea that Secretary Yellen advanced. The G7 seems to at least, have notionally embraced it. So Wendy, again, is this a big deal? Is this going to work? Does this matter?

WENDY EDELBERG: Better international corporate-- better international cooperation on the corporate tax system is a good thing. It's very sensible. And if you're thinking about-- if you're worried about where corporations might put themselves, which countries they might put their headquarters in, I think starting with coordination among the G7 also makes a lot of sense. So I think that there is money to be raised here. I think that this absolutely goes in the right direction. And it doesn't worry me at all about our competitiveness.

JASON GRUMET: Gordon, you want to comment on that, and then I'll turn it over to Alexis?

GORDON GRAY: Yeah. You know, I probably-- I have more concerns than Wendy does about the outlook. Right now, it remains to be seen as to what degree there's consensus among the G20 and then, more broadly, in the inclusive framework. I think, you know, it's not obvious to me, for example, that this would necessarily raise-- at least the inclusive framework process-- would raise revenues in the United States, rather it would cede some of the US tax base overseas.

A global minimum tax paired with the corporate taxes that the Biden administration is proposing, then that would be a revenue positive event for the United States. But the corporate tax proposal that the Biden administration is proposing kind of don't really work as well without global agreement. So those two kind of have to ride together. And it remains to be seen whether or not that's achievable.

ALEXIS CHRISTOFOROUS: I want to get your thoughts, both of you, Wendy and Gordon, on the labor market because we're seeing that the economy continues to add hundreds of thousands of jobs. We have the unemployment rate now below 6%. All of this points to a strengthening labor market. But at the same time, we keep hearing from businesses large and small saying they just can't find the workers. There is a serious labor shortage right now, which could, in fact, jeopardize our economic recovery.

How do you think we should best to this, in terms of getting people wanting to go back to work? We know that a number of states have now said no to that extra $300 in unemployment benefits, thinking that might incentivize folks to go back. But do you think that's going to work? And what are some other ways that we can get people back on the job?

WENDY EDELBERG: For the next few months, we have to start seeing bigger numbers in employment gains in order to really close the employment shortfall. But I think rather than thinking of this specifically as a labor supply shortage, I think we should focus on the fact that there is an enormous amount of churn in the labor market. There are hundreds of thousands of people who are getting jobs every month. There are also hundreds of thousands of people who are leaving their jobs every month.

So I do think that the UI benefits, the expanded and increased UI benefits are certainly one of the reasons that people are taking longer to find good matches. But there are other reasons as well. I mean, the quit rate is at an all-time high, so the fraction of people with jobs who are quitting those jobs and presumably looking for better matches. The number of people who are leaving employment every month, that is probably holding down the net job gain each month by maybe a half million people.

So this is going to take a few months, I believe, to work its way through, as we see these massive shifts in demand from one sector to another sector. We see people, who probably took jobs during the pandemic, that always were meant to be temporary jobs and now they're leaving those jobs and looking for more permanent matches. This is chaotic. And I think it's going to take a few months to work itself out.

ALEXIS CHRISTOFOROUS: Gordon, what are your thoughts here, on how best to handle the labor shortage going forward?

GORDON GRAY: So I think Wendy gets this exactly right, in my view. And it would be very easy to point to one thing and say, aha, that's it. We just change this policy and everything will get back to a nice, orderly increase in employment. I just don't think that's the case. I think it's fair to observe that, with UI benefits, where you have about a third or 30% to 40% of workers for whom the benefits exceed what they were making, that that will have an effect.

But I also don't think that it's fair or wise to say that, well, that that's the single biggest reason that we're not seeing employment growth that we would like to see. As Wendy said, people quitting their jobs is substantially higher than I think what any of us would have expected, after the turmoil of last year. There's just a lot of churn. Families and individuals and households have been through an awful lot in the last year.

There's-- people are experiencing a lot more than just the expectations of their income as it relates to UI. So I think it's, again, sort of speaking that we should have some humility about being able to define exactly what is going on in the labor market to any highly precise degree. So I think there's a lot of factors at play. I think UI is one of them. I think it's significant, but it's by no means-- I don't think it's safe to say that it is the decisive factor here. There's a lot going on.

ALEXIS CHRISTOFOROUS: There is a lot going on. And this discussion will be continued, for sure. But for now, that's all the time we have. This has been a great hour-long discussion today, about economic policy.

And I want to thank our participants at the top of the hour. We had Senators Pat Toomey and Chris Van Hollen. And of course, our thanks to our panelists, Wendy Edelberg of the Hamilton Project and Gordon Gray of the American Action Forum. For Jason Grumet of the Bipartisan Policy Center, I'm Alexis Christoforous of Yahoo Finance. Thanks so much for joining us. We'll see you next time.

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