An Important Point to Keep in Mind about the Infrastructure Deal

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June 25, 2021 10:25 a.m.

I’m still trying make sense of the ‘deal’ negotiated yesterday on infrastructure. But there are a few key issues I can share with you that are pretty interesting. Let me start with one about the so-called ‘payfors’.

One piece of news that came out yesterday, though I think still unofficially, was the various ‘payfors’ that are part of the agreement. Republicans wouldn’t agree to any tax increases for this hard infrastructure agreement. So you needed to come up with ways to get the money. But the list of apparent payfors included a lot of things that sound pretty fishy. Like one payfor is “dynamic scoring”. Another is more aggressive tax enforcement. Then there’s some spectrum auctions. As one senior former Senate staffer told me, it all sounds as phony as a three dollar bill.

This worried a lot of people. But here’s the thing. At least as presented this ‘deal’ appears to appropriate the money and then the ‘payfors’ are how the government gets paid back. The point being if $500 billion in notional pay-fors turn out to recoup only $150 billion that doesn’t mean there’s only $150 billion to spend. It means that $350 billion will be financed through borrowing. So if these pay-fors seems squishy or just bogus that’s not necessarily something that should worry Democrats.

In our recent Inside Briefing with Paul Krugman, which is now available for all members, he said that if anything more of the infrastructure plan should probably be financed by debt. So in policy terms, and not just on making it work no matter what, more deficit financing is probably a good thing.

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Perhaps the agreement – if it ever gets finalized, which is a big if – will get rewritten in such a way that the spending is dependent on the payfors. But that’s not easy to do. And it’s pretty unlikely.

What all this suggests is that a lot of the negotiation was a matter of helping Senate Republicans find things they could pretend were payfors whether they were or not. I don’t meant they’re all phony. One of them is more aggressive tax enforcement backed up by better funding for the IRS. That almost certainly will generate more revenue and it’s good in policy terms. Whether it will generate as much as they claim? Well, that’s another matter. On ‘dynamic scoring’, unlike with upper income tax cuts a trillion in infrastructure spending probably will generate growth which will show up in the government’s tax receipts. But how much? Who knows. And for the White House, I think the answer is who cares. It’s really no skin off their back. If the Republican Senators want to pretend, great.

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