Bipartisan spending deal meets fresh resistance from key Democrats

The bipartisan infrastructure deal endorsed by President Biden is facing fresh skepticism from key Senate Democrats who are concerned about plans to pay for the $973 billion package.

Two major financing mechanisms for the spending proposal — repurposing unspent funds for unemployment benefits and for state assistance — are meeting resistance from a group of Democratic senators who say higher corporate tax rates should be the primary revenue source.

Leading the charge is Senate Finance Committee Chairman Ron Wyden (D-Ore.), who has been working on his own proposal to pay for a major infrastructure package and is now waiting for Senate Majority Leader Charles Schumer (D-N.Y.) to signal when he can unveil the revenue-raising bill.

The Oregon Democrat is focused on raising an estimated $1 trillion from corporations as well as more than $300 billion from taxing unrealized capital gains, according to a source familiar with internal Democratic discussions.

Wyden has argued that corporations, which saw their tax rates slashed in 2017 under former President Trump, will benefit substantially from new infrastructure investment and must therefore shoulder much of the cost.

The bipartisan proposal, however, calls for raising money in a variety of other ways that shield corporations from tax increases. The most controversial among Democrats are plans to redirect unused unemployment insurance funds and repurpose $125 billion in untapped COVID-19 relief funding previously designated for state and local governments.  

Democrats on the Senate Finance Committee, who were not involved in negotiating the bipartisan package, are raising red flags about clawing money back from unemployment insurance accounts after Friday’s jobs report from the Labor Department showed the unemployment rate inched up to 5.9 percent in June.

About two dozen states — almost all led by GOP governors — have cut off the additional jobless benefits from Washington, arguing they were encouraging too many residents to stay on the sidelines instead of rejoining the labor force.

“I continue to believe that the real motivation of this from these Republican governors is essentially to find a way to cut back assistance to some of the most vulnerable Americans, particularly women, who are not just losing their $300. … It’s the extra weeks, it’s the coverage for gig workers; a lot of these people may have exhausted their state benefits,” Wyden said of efforts by Republicans to cut federal unemployment benefits included in the American Rescue Plan.

Implementing new “program integrity” rules for unemployment insurance in the bipartisan deal would reduce spending on jobless benefits by an estimated $80 billion, while recouping unspent unemployment funds would raise another $25 billion.

One progressive strategist predicted that while Wyden cares passionately about unemployment programs, he is likely to “stand down” and accept the bipartisan deal if Biden continues to back it and it retains support from enough Senate Republicans to overcome a filibuster.

Sen. Ben Cardin (D-Md.), another member of the Senate Finance Committee, said negotiators of the bipartisan framework “used every conceivable thing other than normal increases in fees or taxes to pay for it.” 

“It’s not the traditional types of revenues you expect to have,” he added.

Cardin raised concern over the plan’s proposal to recoup unspent unemployment assistance funding. 

He argued that lawmakers didn’t intend for those funds from the $1.9 trillion American Rescue Plan in March to be spent immediately, as it may take months or even years for the nation to recover the jobs lost during the coronavirus pandemic. The U.S. is still down nearly 7 million jobs from February 2020.

“I don’t like it. I think that money was intended to be over a period of time, it was not intended to be spent immediately. It was to give an on-ramp to a stronger economy,” Cardin said.

Wyden, Cardin and other Democrats on the Finance Committee who haven’t signed onto the bipartisan framework will have a chance to put their imprint on any resulting infrastructure bill as the proposal moves through the panel on its way to the Senate floor.

“I don’t think progressives in general are crazy about the pay-fors. I think people might accept them with an understanding that there are better things yet to come,” said Democratic strategist Mike Lux.

Party leaders have promised to tie the bipartisan deal to a larger package that would raise taxes on corporations and the wealthy. The likely Democrat-only measure would need to pass under the budget reconciliation process in order to sidestep a GOP filibuster in the Senate.

Lux said the bipartisan negotiators had to find creative ways to raise revenue because “Republicans don’t want to tax rich people.” 

“Some of it may well be bullshit stuff that isn’t real,” he said of the more controversial funding streams.

Senate Budget Committee Chairman Bernie Sanders (I-Vt.) said last month he would not vote for the bipartisan framework because of what he called a lack of “progressive” revenue sources.

“I wouldn’t vote for it,” he said. “The bottom line is there are needs facing this country. Now is the time to address those needs and it has to be paid for in a progressive way given the fact that we have massive income, wealth inequality in America.”

The infrastructure framework, which remains in outline form, also faces skepticism from some Republicans who are leery of pumping $40 billion into the IRS to beef up enforcement activities, which could unleash a wave of future tax audits.

Funding plans that have drawn skepticism from lawmakers in both parties include $100 billion that bipartisan negotiators say would be raised by creating direct-pay municipal bonds to attract more investment to private infrastructure, as well as $20 billion that would come from repurposing broadband funding allocated in previous legislation and $58 billion estimated from nontraditional “dynamic scoring.”

Senate Minority Leader Mitch McConnell (R-Ky.) said Republicans want to see a Congressional Budget Office analysis of the revenue raisers “to see whether the proposal is credibly paid for.”

Progressive activists are criticizing the funding streams in the bipartisan package as “regressive” and largely illusory.

“It seems to me like a lot of the so-called pay-fors in the bipartisan plan are fiction. They are certainly not likely to raise the money that they say they will,” said Roger Hickey, co-founder of Campaign for America’s Future, a progressive advocacy group.

“If they do raise the money, they will do it in regressive ways,” he added.

Hickey dismissed an estimate that the bipartisan plan could raise as much as $80 billion by program integrity rules for unemployment assistance programs, arguing that any savings would more likely come from straight cuts to jobless benefits. 

“To the extent there are problems with integrity, they’re very hard to get at. They’re unlikely to raise the money that they promised they’re going to raise. It really means cutting those programs,” Hickey said.