Suddenly, Joe Biden is beginning to sound a little bit hawkish about the deficit. On Wednesday, reporters asked the president whether he was willing to accept a lower corporate tax hike than the one he proposed to pay for his infrastructure and jobs plan. “I’m willing to compromise but I’m not willing to not pay for what we’re talking about. I’m not willing to deficit spend,” he responded. Referring to Republicans, who passed a debt-financed tax cut in 2017, he added, “They already have us $2 trillion in the hole.”
Was Biden being literal—that he didn’t want any new deficit spending? It was a little hard to tell. Since passing its debt-financed $1.9 trillion coronavirus relief package in March, the administration has offered a series of tax proposals it says would fully cover the cost of its infrastructure, jobs, and families agenda. It has also made the fact that Biden’s plans supposedly wouldn’t add “a penny more” to the deficit a key talking point. However, the White House’s official position has been that while permanent new spending programs should be paid for, it was OK to borrow for temporary ones. That seemingly left some flexibility on how to cover the cost of one-time investments like infrastructure.
I asked the White House whether the president’s position had changed and if he would be adamant that his entire package be deficit-neutral. Its answer, in short, was no.
“The President is open and willing to find a path forward with Democrats and Republicans to make historic investments in infrastructure and create jobs and the only red line he continues to have is inaction,” an official, responding on background, said in an emailed statement. “He was not announcing a new position, he was simply reiterating the fact that he has outlined a proposed way to pay for his proposals and he looks forward to hearing any additional ideas that don’t raise taxes on anyone making under 400,000/year.”
Even so, Biden’s newly hawkish tone is a bit worrisome. Democrats spent much of the last 20 years desperate to prove that they were, in fact, the more fiscally responsible party in Washington, despite lingering stereotypes about budget-conscious conservatives that somehow survived the George W. Bush years. The internalization of austerity politics as well as the impulse to appear moderate and “responsible” led to deep policy mistakes—such as the undersized 2009 stimulus bill and the penny-wise, pound-foolish approach to the Affordable Care Act that left the insurance it provided decidedly unaffordable to many middle-class Americans. With some key exceptions, Democrats mostly seemed to shake away those old political habits over the last few years, thanks to the general profligacy of the Trump administration, the historic emergency posed by COVID, and a shift in thinking among mainstream, center-left economists, who are far less concerned about the effects of debt than in the past. By January of this year, Biden, who spent most of his career in Washington as a debt scold, had even learned to sing the new tune. “Every major economist thinks we should be investing in deficit spending in order to generate economic growth,” he told reporters. But now he seems to be falling back into old ideological and rhetorical grooves.
To be fair, the administration has no choice but to pay for much of its agenda, both for political and procedural reasons. The 50th vote in the Senate is still a man whose aides text him an update every morning about how much the national debt has grown; West Virginia’s Joe Manchin says he wants infrastructure to be paid for. The budget reconciliation process, which Democrats will rely on to pass bills without Republican support as long as the filibuster is still around, essentially requires that permanent spending programs be paid for. (Specifically, legislation passed through it cannot raise the deficit outside of the 10-year budget window.)
But there are also obvious opportunities for smart deficit spending right now. In a world of low interest rates, it makes economic sense to debt-finance big, one-time investments in things like green energy rather than wasting political capital on difficult tax hikes. (As long as the economy’s rate of growth remains higher than the interest on Treasury bonds, whatever extra debt we accumulate should by definition be sustainable). Biden’s message to Republicans and moderate Democrats should be that if they don’t like his fairly reasonable tax hikes, they should be willing to intelligently deficit-spend, not that he won’t be willing to add to the debt.
Why is Biden suddenly talking about debt like it’s 2006 again? According to reporting from the American Prospect, Treasury Secretary Janet Yellen’s influence may have something to do with it. Yellen has a long streak of deficit hawkery; in 2018, she called America’s rising debt load “unsustainable” and said that “if I had a magic wand, I would raise taxes and cut retirement spending” to combat it. Her more recent rhetoric has been more dovish, and emphasized that it’s appropriate to make use of America’s good credit in emergencies like COVID. But the Prospect reports that “she has been the key official driving the idea that the infrastructure investments must be paid for.” And on Meet the Press Sunday, she seemed to make the economic case for fiscal caution:
I’m not going to speak for what the president will do in a negotiation. But he has made clear that he believes that permanent increases in spending should be paid for and I agree. I think we’re in a good fiscal position. Interest rates are historically low. They’ve been that way for a long time, and it’s likely they’ll stay that way into the future. But we do need fiscal space to be able to address emergencies, like the one that we’ve been in with respect to the pandemic. We don’t want to use up all of that fiscal space, and over the long run deficits need to be contained to keep our federal finances on a sustainable basis. So, I believe that we should pay for, pay for these historic investments.
I don’t want to over-interpret Yellen—she’s obviously leaving breathing room for the administration. But it would be a historic shame if Biden actually chose to shrink the size of his agenda rather than add to the debt, especially given that voters don’t seem particularly worried about spending at this point. (A recent poll found that support for Biden’s infrastructure plan was actually 1 percentage point higher when voters were told its price.) And merely by emphasizing old, fiscally conservative arguments about not adding “a single penny” to our deficit, it feels like Biden is threatening to undermine some of the intellectual and political progress Democrats have made learning to relax and love the deficit, and is giving opponents of his plans ammo they can weaponize against it later, if he can’t find a way to quite cover its full cost. Maybe he’s playing some sort of 3D chess here, so that if he has to accept some deficit spending, he can position it as a reluctant decision made after trying every other negotiating option. Or, to put it another way, the theory might be that he has to squawk like a deficit hawk in order to fly like a dove. But personally, I’d rather he just knock it off.