There isn’t much as dangerous for politicians as rising prices on constituents. With relentless inflation hitting Americans hard, some politicians are growing wary of record spending. Colby Smith and Lauren Fedor report for the Financial Times:
The $3.5tn price tag on the Biden administration’s budget plan has ignited fresh debate in Washington about the potential inflationary effects of increased public spending at a time when US consumer prices are rising rapidly.
The US Senate on Wednesday passed a budget resolution that will form the basis of a sweeping bill that would make big investments in education, housing and climate-related initiatives, expand Medicare and enhance a child tax credit programme, among other outlays.
The legislative blueprint includes a mechanism to offset the spending with higher taxes on US companies and wealthy Americans. It was passed on the heels of a bipartisan $1tn infrastructure bill and was quickly followed by the latest inflation report, which showed prices were steady in July at a 13-year high, despite a more moderate monthly increase and a significant drop-off in gains for some of the most pandemic-sensitive sectors.
Rising inflation fears could imperil Joe Biden’s spending ambitions as the two bills head to the House of Representatives later this month. The House, which Democrats control by a slim margin, will return from summer recess early to first consider the budget resolution, and then weigh up the infrastructure package. Both pieces of legislation must pass both chambers of Congress.
“Inflation has become part of the congressional debate for the first time in the at least 25 years I’ve been following this,” said Jason Furman, a senior fellow at the Peterson Institute for International Economics, who previously served as an economic adviser to presidents Barack Obama and Bill Clinton.
While the infrastructure bill passed the Senate with bipartisan support — 19 Republicans, including Senate minority leader Mitch McConnell, voted for the legislation — Democrats have elected to go it alone with the budget process, using a convention called reconciliation to get around the 60-vote filibuster threshold in the Senate. The budget resolution passed the upper chamber on Wednesday in a party-line vote, with all 50 Democrats voting for the measure and 49 Republicans voting against.
“Inflation will continue to factor prominently into the fiscal debate, which is set to heat up as Democrats flesh out their spending plans ahead of the 2022 midterms,” said Robert Kahn, director of global strategy and global macro at Eurasia Group, a consultancy.
“Progressive Democrats arguing for more spending will feel relieved to see that inflation may be close to a peak. Republicans will continue to push back, noting inflation is much higher than consumers are accustomed to and connecting it to government policy.”
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