The Social Contract: What’s Missing in the “Historic” Biden Legislation? – Non Profit News

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How can movements transform society to advance economic justice? Much of this struggle takes place outside government, but the role of the state is important.

For one, the public sector is a large part of the economy. According to the Organization for Economic Cooperation and Democracy (OECD)—a group of 41 relatively wealthy nations, including the United States—in 2019, US government spending (federal, state, and local) equaled 38.1 percent of gross domestic product (GDP).

Government also sets the terms for what might be called a social contract—that is, the unofficial economic bargain between the state and its citizens. The New Deal’s (limited) government support for unions and pensions (including Social Security), which provided a modicum of economic security and moderated economic inequality, offered one form of a social contract.

The neoliberal regime of the past four decades, which economist David Harvey has defined as a set of economic practices that privilege “individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets, and free trade,” has offered a more limited social contract, one that has shifted risks from the state onto individuals.

Many of the policy struggles of the current period reflect this odd balance—a growing recognition that “business as usual” is unsustainable and a reluctance to confront the implications of this realization.”The student debt explosion illustrates this. As Harvard economist David Deming has pointed out, “A generation ago, there was a system that helped you not take on the risk yourself to pay for college education, but society took on the risk for you by making tuition cheap…We’ve shifted the risk from society directly to the student.” A similar observation can be made about the shift of our retirement system from pensions that provided guaranteed lifetime annuities (known as “defined benefit” pensions) to 401k and 403b “defined contribution” plans, which fluctuate with the vagaries of the stock market.

Even before the COVID-19 pandemic, signs of neoliberalism’s fraying were evident. Now, after a pandemic that has taken over one million lives in the United States and millions more globally, and after a racial justice uprising that brought an estimated 15 to 26 million Americans into the streets, pressures for social change are mounting. Yet, even as social movements rise and the old system withers, a new social contract has yet to emerge. Many of the policy struggles of the current period reflect this odd balance—a growing recognition that “business as usual” is unsustainable and a reluctance to confront the implications of this realization.

The 2022 midterm elections are a case in point. Their results were mixed, but Democrats did much better than expected and Republicans much worse. Compared to historic trends, the Democratic Party “won.” Yet, the essential stalemate remains. Historically, times of great tumult like our own are accompanied by major shifts at the voting booth. In 1932, there was a 17.7 percentage point shift to Democratic presidential candidate Franklin Delano Roosevelt (as compared to 1928 voting figures). In 1980, there was a 9.7 percentage point shift from 1976 to Republican presidential candidate Ronald Reagan. As Janelle Bouie writes in the New York Times, such a shift is likely to occur in the present period, but it has not happened yet.

The stops and starts of the past two years of the Biden administration must be seen in this context, a context in which the forces pushing for a more progressive social contract are neither strong enough to win nor weak enough to lose.

 

Assessing the Biden Infrastructure Bill

The infrastructure bill, passed by the US Senate in August 2021 and the US House of Representatives three months later, seems like ancient history now. But it is worth recalling that less than one fourth of what Biden initially proposed survived the legislative process, as the chart below illustrates:

Initial Biden proposal v. final infrastructure bill, compared (in billions of dollars)

Original Approved
Basics (water, broadband, electric grid, resiliency) $689 $266
Transportation (airports, electric cars, rail, roads, transit) $621 $284
Research/development, manufacturing, workforce $580 $0
Long-term care $400 $0
Total $2,290 $550

Even the $550 billion figure overstates the amount of new money committed. As Heather Long wrote in the Washington Post, nearly half of the $550 billion allocated came from “repurposing coronavirus relief money.”

While $550 billion is far less than initially proposed, it nonetheless marked a significant increase in infrastructure spending. Many media accounts (and the White House) misleadingly labelled the legislation a $1.2 trillion bill, which is only true if you count the $650 billion for roads and infrastructure that was already law before the bill’s passage. Effectively though, this means that for a five-year period, infrastructure spending is set at roughly 85 percent above previous levels.

The mix of spending contained in the bill is also important. Some of the spending, such as the $110 billion for roads and bridges—the single largest item in the bill—was hardly a departure from normal infrastructure spending, even if it was surely needed.

Other areas of the legislation marked more of a departure, such as the $65 billion dedicated to broadband. Effectively, broadband has become a utility, but as of 2021, an estimated 30 million Americans lacked reliable internet access. The $65 billion investment in broadband should go a long way toward making universal broadband access a reality.

 

The Inflation Reduction Act

If media and White House characterizations of the infrastructure bill’s spending totals were misleading, the Inflation Reduction Act’s (IRA) very name was misleading. The bill achieves some important things, but even advocates concede that its effect on the inflation rate is modest. A Wharton study finds its likely impact on inflation to be “statistically indistinguishable from zero.”

Rather, the legislation, as New York Times columnist Paul Krugman aptly describes it, “is mainly a climate change bill with a side helping of health reform.” As with infrastructure, it is useful to compare the legislation with what was originally proposed.

This gets complicated. President Joe Biden initially proposed two bills—the American Jobs Plan (parts of which became the infrastructure bill) and the American Families Plan (which proposed expanded social services). The Build Back Better bill, as proposed in the summer of 2021, combined parts of the Jobs Plan that were not included in the infrastructure bill with the provisions of the Families Plan.

Most importantly, Build Back Better included $555 billion in proposed climate justice spending, of which $386 billion, or roughly 70 percent, was passed through the IRA. The other major cost item that made it into the IRA were healthcare subsidies. In the original American Families Plan bill, $200 billion was earmarked for healthcare subsidies. This was cut to $64 billion by limiting the extension of subsidies approved during COVID to three years instead of 10. The IRA also includes $34 billion for vaccines and related COVID expenditures.

The “inflation reduction” aspect of the bill, such as it is, concerns tax and revenue provisions. Far less than the tax increases originally proposed, these provisions will raise an estimated $79 billion a year ($790 billion over 10 years), about a 1.6 percent increase from the $4.9 trillion in revenue in Fiscal Year 2022. Taxation is mildly deflationary, since, by definition, taxes reduce the money available for consumer purchases. The IRA’s three main tax provisions are an increased Internal Revenue Service budget (to reduce tax evasion by the wealthy), a 15-percent corporate minimum tax, and a new one-percent tax on corporate stock buybacks. Part of the revenue raised also comes from empowering the Medicare program to (starting in 2026) negotiate lower prices for some drugs through bulk purchasing.

 

Left on the Cutting Room Floor 

The IRA authorized about $484 billion in spending and the infrastructure bill $550 billion. Combined, that’s a little over $1 trillion committed over 10 years—a lot less than the $4 trillion Biden initially proposed. The roughly $100 billion a year allocated, when compared to a FY 2022 expenditure total of $6.27 trillion, works out to a modest increase of 1.6 percent. (By contrast, the annual defense budget in Fiscal Year 2022 climbed by 3.9 percent to $782 billion).

Items left on the cutting room floor include:

  • Paid family leave: An expenditure of $22.5 billion a year—that is, less than $100 a year per capita—would have established a 12-week minimum payment.
  • Universal pre-kindergarten: A commitment of $200 billion over 10 years would have funded pre-kindergarten classes for three- and four-year-old children across the country.
  • Free community college: A commitment of $109 billion over 10 years would have allowed the federal government to make community college free nationwide.
  • Child tax credit: A provision of the 2021 American Rescue Plan Act created monthly payments of $300 per child under the age of six and $250 per child between ages six and 17. The provision is estimated to have reduced childhood poverty by 41 percent, lifting 3.7 million children out of poverty in 2021. Continuing the policy would have cost $60 billion a year, or about $200 per capita. The provision was allowed to expire.
  • Childcare cost cap: A $225 billion program over 10 years would have allowed the federal government to make payments to childcare providers to keep payments at seven percent of annual income for parents making 250 percent of the state’s median income or less.

One notable thing about these policies is that similar measures have long been the norm in other countries. For example, among all 41 member nations analyzed by the OECD in 2019, the United States is the only one that lacks paid family leave. Universal pre-kindergarten is the norm in many countries, including Great Britain, France, Belgium, and Iceland. Likewise, free or nearly free public higher education exists in many countries, including Germany, Spain, Denmark, and Sweden. As for child support, the US trails pretty much every OECD nation; government support in the US is roughly $500 per child per year, compared to an OECD average of $14,000 per child.

Build Back Better also proposed to raise corporate and income tax rates on wealthier Americans and close tax loopholes that allow individuals to evade the estate tax. None of those policy changes made it into law.

In short, in terms of the social contract, the shift away from neoliberalism has been exceedingly modest.

One other measure worth noting is Biden’s move this summer to cancel up to $20,000 per borrower of student loan debt. Because of the current political stalemate, Biden acted through an executive order as opposed to legislation, making the measure vulnerable to being blocked by the courts. But Biden’s move speaks to growing pressure from debt justice advocates for a policy change that reverses the shift of the cost of higher education onto individuals of the past 40 years. Such a change may lead to lower education costs or even free public higher education down the line.

 

Progress and Ongoing Struggle—The Need for Structural Change

The word “historic” has been thrown around a lot, whether to describe the infrastructure bill or the IRA’s climate provisions. Some, however, have noted that the word “historic” is only accurate when contrasted against the previous baseline of inaction. As Rhiana Gunn-Wright of the Roosevelt Institute puts it, the IRA’s climate provisions are an “historic but deeply flawed step forward for the development and deployment of climate solutions and clean energy.”

Both the IRA and infrastructure bills were, of course, compromise legislation. While countless articles have been written on legislative minutiae, such analyses miss the larger challenge of creating the political shift needed to move a still largely immobile US polity. Building power, in short, is essential.

Building a new social contract will…require developing not just new government programs, but institutions that live outside government.Another challenge is structural. If one looks at the items—both those that passed and those that fell short—in Build Back Better, the focus has clearly been on government programs. As noted above, there are compelling reasons for those programs. But they form part of what is largely a liberal or social democratic policy strategy that fails to challenge either the limits of the capitalist economy or the political sphere.

When one considers the New Deal’s history, many of the key strategies that had lasting effect were not just social programs, but also, critically, the building of institutions—unions, rural electric co-ops, and credit unions being three of them.

A new social contract, if it is developed, will not simply be delivered by government from on high, but rather advanced by social movements from the bottom up.Building a new social contract will likewise require developing not just new government programs, but institutions that live outside government, including unions, employee-owned businesses, and more. Building community institutions is also critical for climate justice, as the work of the late Elinor Ostrom illustrates.

Much of the work that has been lifted up at NPQ—whether community finance, the solidarity economy, or bargaining for the common good—is predicated on this point. A new social contract, if it is developed, will not simply be delivered by government from on high, but rather advanced by social movements from the bottom up.

 

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