Inflation Is New Battle Line as Republicans and Biden Spar Over Spending

Some of the proposals would distribute money directly and quickly to American consumers and workers — by raising wages for home health care workers, for example, and continuing an expanded tax credit that effectively functions as a monthly stipend to all but the highest-earning parents. But they would also raise taxes on high earners, and much of the spending would create programs that would take time to find their way into the economy, like paid leave, universal prekindergarten and free community college.

Some conservative economists worry that the relatively small slice of immediate payments would risk further heating an already hot economy, driving up prices. The direct payments in the proposals “would exacerbate pre-existing inflationary pressures, put additional pressure on the Fed to withdrawal monetary policy support earlier than it had planned, and put at risk the longevity of the recovery,” said Michael R. Strain, an economist at the conservative American Enterprise Institute.

Other economists in and outside the administration say those effects would be swamped by the potential of the spending programs like paid leave to reduce inflationary pressure.

“The economics of these investments strongly belies the Republican critique because these are investments that will yield faster productivity growth, greater labor supply, the expansion of the economy’s supply side — which very clearly dampens inflationary pressures, not exacerbates them,” Jared Bernstein, a member of Mr. Biden’s Council of Economic Advisers, said in an interview.

Administration officials pivoted their sales pitch on the president’s agenda last week to emphasize the potential for his plans to reduce prices.

Mr. Biden’s agenda is “about lowering costs for families across the board,” Mike Donilon, a senior adviser at the White House, told reporters. He said officials believed they were in “a strong position” against Republican attacks on inflation, in part by citing Mr. Zandi’s recent analysis. The president also referred to that analysis last week during a forum in Ohio on CNN, saying it had found that his proposals would “reduce inflation.”

Article source: https://www.nytimes.com/2021/07/28/business/economy/inflation-republicans-biden-spending.html