Policy Landscape

Discussions Gain Momentum on Reconciliation Package

Capitol building spring

Congress returns to Washington next week as talks on a scaled-back reconciliation package between Senate Majority Leader Chuck Schumer (D-NY) and Sen. Joe Manchin (D-WV) have reportedly gained momentum, with a focus on climate and energy provisions, deficit reduction, and lowering prescription drug costs. (Wall Street Journal, May 28 and Axios, May 27)

 The Reconciliation Route 

  • Axios reported last night that Manchin’s separate talks with several Republican Senators on the contours of a pared-down, bipartisan legislative package have reached an end. (Axios, June 2 and Roundtable Weekly, May 6)
     
  • Manchin, who stymied the Build Back Better (BBB) Act from moving forward last year, is the key to a possible alternative Democratic reconciliation bill that could pass the 50-50 Senate on a party-line vote. 

  • Sen. Manchin and Sen. John Thune (R-SD), who holds the number two position in Senate Republican leadership, will be among the guests during The Roundtable’s Annual Meeting on June 16. 
     
  • Sen. Kyrsten Sinema (D-AZ) is also a crucial centrist vote. She discussed policy issues at The Roundtable’s April 25 Spring Meeting. (Roundtable  Weekly, April 29) 

Scaling Back 

Sens. Joe Manchin and Chuck Schumer
  • The Schumer-Manchin discussions are now reportedly addressing a pared-down package involving $800 million to $1 trillion in revenue from a new minimum tax on large company profits and increased IRS enforcement. Half of these revenues would go to deficit reduction. (Wall Street Journal, May 28 and Axios, May 27) 

  • Some of the remaining revenues would reportedly focus on possible tax incentives for reducing carbon emissions and support for existing energy sources. An extension is also under consideration for Affordable Care Act health insurance subsidies, which are scheduled to expire later this year as the November mid-terms approach. 
  • The most significant portion of the moribund BBB Act’s proposed spending was focused on climate policies. The Roundtable on Nov. 16, 2021 sent a letter to congressional tax writers detailing five recommendations on green energy tax provisions affecting real estate that were part of the BBB Act. (Roundtable Weekly, Nov. 19, 2021) 

Time is short to move any new legislative package via reconciliation with midterms looming. Manchin has stated the only deadline is Sept. 30 to pass a spending bill, although other policymakers have signaled it would have to be done before the August recess. (Wall Street Journal, May 28 and Reuters, May 27) 

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Inflation

President Biden Announces Plan to Fight Inflation With Federal Reserve in Lead Role

President Biden meets with Fed Chair Powell and Treasury Secretary Yellen on inflation

President Joe Biden affirmed this week that the Federal Reserve will take the lead role in his administration’s efforts to tame inflation. The Fed’s “Beige Book” of regional economic surveys also confirmed the economy is facing headwinds of high inflation, supply chain issues and labor market difficulties. (Barron’s, May 31 and MarketWatch, June 1)

Top Economic Priority

  • Biden announced a three-pronged plan to fight inflation as his “top economic priority” in a May 30 Wall Street Journal op-ed, where he noted the Fed will have the primary responsibility to control rising prices.

  • Biden stated his second goal is to push Congress to act on cost-reduction measures such as clean energy tax credits and a Housing Supply Action Plan recently proposed by the administration. Lastly, he listed that Congress must act to reduce the federal deficit, citing a May 25 report by the Congressional Budget Office. (CBO Budget and Economic Outlook: 2022 to 2032).

  • Federal Reserve Chair Jay Powell and Treasury Secretary Janet Yellen also met with President Biden this week (see photo with video link, above) to reiterate their “laser focus on addressing inflation.” Biden remarked, “With a larger complement of [Federal Reserve] board members now confirmed, I know we’ll use those tools of monetary policy to address the rising prices for the American people.” (White House remarks and video, May 31)

  • The next meeting of the Federal Open Market Committee is June 14-15, when it is expected that the Fed’s benchmark interest rate will be increased by half a percentage point. (AP, May 25)

  • The White House previously announced plans to combat inflation on May 10 that included proposals to increase taxes on large corporations and the wealthiest Americans – and possibly eliminate Trump-era tariffs on foreign imports. (White House Inflation Plan | News conference video | The Hill, May 10) 

Beige Book & Sentiment Index

Beige Book cover -  June 1 2022

  • In the Fed’s June 1 “Beige Book,” the majority of the twelve Federal Reserve Districts reported slight or modest growth. Survey respondents cited labor market difficulties as their greatest challenge, followed by supply chain disruptions. Rising interest rates, general inflation, the Russian invasion of Ukraine, and disruptions from COVID-19 cases (especially in the Northeast) round out key concerns impacting household and business plans, according to the Fed’s surveys.

  • Roundtable President and CEO Jeffrey DeBoer commented on similar findings in The Real Estate Roundtable’s Q2 2022 Economic Sentiment Index. “Our Q2 Sentiment Index reveals bright spots for lease demand in a wide swath of the economy, particularly regarding life sciences, industrial, multifamily, and data center assets. At the same time however, high inflation, rising interest rates, labor and supply chain shortages are increasing costs associated with all real estate development and operations. The impact of ongoing war in eastern Europe is another cloud tempering optimism.”

  • He added, “We urge national policymakers to focus on creating jobs and supporting strong real estate asset values. Both actions would buttress the overall economy and help local community budgets provide needed safety, education and transportation services.” (Roundtable news release, May 13)

CBO Projections

CBO Outlook website image

  • The CBO’s May 25 Budget and Economic Outlook noted that although the deficit is projected to fall to about $1 trillion — or 4.2 percent of GDP — in the current fiscal year from almost $2.8 trillion last year, demographic pressures and other factors will push deficits steadily higher in later years.

  • These pressures on the federal deficit could have an impact on the prospect for legislation addressing “tax extenders” later this year during a post-election, congressional “lame duck” session. 

Inflation, interest rates and other economic conditions will be a focus of discussion during The Roundtable’s Annual Meeting on June 16-17 in Washington, DC (all member meeting). 

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