Congressional Update: Still Working On Budget; Infrastructure Bills
As of October 22, negotiations continue between House Democrats, Senate Democrats, and the White House over how to pass the two most consequential portions of President Biden’s legislative agenda: (1) the bipartisan Senate-passed $1.2 trillion infrastructure bill, and (2) a partisan reconciliation package containing a variety of Democratic climate change, tax, and healthcare priorities.
Initially, House Democrats proposed a $3.5 trillion reconciliation package, but this was immediately deemed dead on arrival in the Senate as Senators Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ) were opposed to the spending levels and specific policies.
Over the past few weeks, the demands of Senators Manchin and Sinema have become more clear. While they both prefer the topline number to be less than $2 trillion, their policy priorities differ.
Regarding climate, the Clean Electricity Performance Program (CEPP) – the lynchpin of Democrats’ climate strategy that penalizes utilities for not providing a certain amount of electricity from clean energy – has been eliminated.
However, several large energy producers, including BP and Shell, recently urged Speaker Nancy Pelosi (D-CA) and Senate Majority Leader Chuck Schumer (D-NY) to preserve the CEPP.
Democrats are still expected to include around $300 billion in tax credits and incentives for clean energy programs including EVs.
Regarding possible tax implications, Senator Manchin supports curtailing child care tax credit eligibility but broadly supports most of Democrats’ other proposed tax changes.
Senator Sinema had initially resisted efforts to raise the individual and corporate tax rate, but it was reported late last week that Senator Sinema had reached an agreement with House Ways and Means Committee Chairman Richard Neal (D-MA) to raise taxes on corporations and wealthy Americans without raising the actual rates.
Potential options include a minimum corporate tax (in line with what Washington is pushing internationally), a stock buyback tax, taxing offshore profits, and enhanced tax enforcement.
For EMA members, a reduced cost of the package – reported to be less than $2 trillion – would require fewer pay-fors, meaning that burdensome tax increases such as the tobacco excise tax increase could be eliminated.
It also appears that a corporate rate increase and a lowering of the estate tax threshold may be eliminated, though we stress that the situation is highly fluid.
Despite the party infighting, Congressional Democrats seem to believe a deal will come soon, though Senator Manchin reportedly said it would take time after a meeting with Senator Bernie Sanders (I-VT).
Significantly, both wings of the party are using all of their leverage – Senators Manchin and Sinema can water down the reconciliation package, but progressive Democrats can all together block House passage of the Senate-passed infrastructure bill until a reconciliation agreement is reached.
During a town hall discussion, President Biden said he would like a deal on reconciliation and a vote on the infrastructure bill before October 30, when he heads to Europe for a G20 summit and climate change conference.
Democrats have several other action-forcing deadlines, including surface transportation expiring at the end of October, as well as the Virginia gubernatorial election.
Later in the year, Congress faces two December 3 deadlines – raising the debt ceiling and funding the government.
Key congressional deadlines:
— October 30: Surface transportation and Highway Trust Fund authorization expire, which imposes a “soft” deadline for passing the bipartisan infrastructure package
— December 3: Debt ceiling expected to be reached
— December 3: Deadline for Congress to pass fiscal year 2022 government funding legislation
— TBD: Congressional Democrats and the White House will likely rewrite their reconciliation measure and look to pass the legislation, on a party-line vote, before December 31, 2021.