• Allon Advocacy

Budget Reconciliation: Dems in Disarray?

The pathway to enactment for the Democrats' human infrastructure and tax bill is looking increasingly difficult.

The temperature in the nation’s capital might be approaching 95 degrees, but summer definitely is over. The Senate has returned from its August recess, and the House will do so next week. With a long list of priorities that lawmakers need to tackle over the fall term, the partisan bickering will be as hot as the air in the Washington swamp.

But on one of the highest profile bills Congress will consider over the next several weeks, it’s not the GOP with which Democratic leaders will have to contend. Intra-party squabbles threaten to sink one of the White House’s biggest priorities of the year: the fiscal year 2022 budget reconciliation.

Before we take a look at the state of that debate on Capitol Hill, a quick reminder about the political reality in which lawmakers are operating.

Just No Room for Error

The Senate, of course, is split 50-50 between Republicans and Democrats. The president of the Senate — Vice President Kamala Harris — casts the tie-breaking vote. Advantage Democrats in that regard, but there also is this fact: despite the wishes of the more progressive wing of the majority party, the Senate is still operating with the legislative filibuster in place. Any bill not brought to the Senate floor under the budget reconciliation process can be filibustered. (As a reminder, it takes 60 votes to break a filibuster.)

Given the filibuster’s long and storied history in the Senate, we are accustomed to forgetting about how hard it can be to cobble together a majority of votes in the House. But House Speaker Nancy Pelosi (D-Calif.) is dealing with one of the closest House margins in U.S. history. Unless the Speaker is able to convince Republicans to join her cause, she can afford to lose only three votes from the Democratic caucus or the Biden agenda fails.

The House Democratic caucus represents a wide range of ideological views. Nineteen self-proclaimed fiscally moderate Democrats make up the House Blue Dog Coalition, for example, while 95 House lawmakers are part of the House Progressive Caucus. Speaker Pelosi needs to balance the views of both groups to ensure legislative success.

Can she? It will be difficult. When it comes to the budget reconciliation, at least, Democrats already are showing consensus is going to be difficult to achieve.

Budget Reconciliation Written … But Can It Pass?

Under a resolution passed in August, House committees had until today (September 15) to write their parts of the fiscal year 2022 (FY 2022) budget reconciliation bill. A few panels, including the tax-writing Ways and Means Committee, will continue their work well into this evening, but we know that the legislation will include approximately $3.5 trillion in new spending and about $2 trillion in new taxes on individuals, families, and businesses. Once the work of writing the bill is over, the hard work of securing votes begins.

Democrats will not start out this phase in a good position. In fact, they already are down at least one vote in the Senate.

Last week, Sen. Joe Machin (D-W.Va.), a key moderate vote for the party in power, said the $3.5 trillion reconciliation price tag is too rich for his blood. He would like to see a piece of legislation closer to $1.5 trillion. Sen. Manchin also has made it clear throughout the year that he is unlikely to accept a corporate income tax rate that is higher than 25 percent.

And Democrats on the House Ways and Means Committee just issued a plan that would raise that levy to 26.5 percent.

At least three other Senate Democrats’ votes are up in the air. Sen. Kyrsten Sinema (D-Ariz.) has not yet said how she will vote on the $3.5 trillion package — though she also has indicated she is worried about the price tag — and this week Sen. Mark Warner (D-Va.) indicated he may not vote for the bill because he wants more funding to promote homeownership. In a statement, Sen. Warner said, “As currently written, this proposal falls short.” Finally, Sen. Jon Tester (D-Mont.) told reporters that he wants “100 percent” of the reconciliation bill paid for by budgetary offsets (e.g. revenue increases). The current draft in the House would fall about $1.5 trillion short of that goal.

Budget Reconciliation Includes $2 Trillion in Tax Increases

Ways and Means Chair Richard Neal (D-Mass.) released the bulk of his committee’s tax plan over the weekend. According to the five-page, preliminary summary, House Democrats would:

  • Provide $80 billion over10 years for tax enforcement related to high-income taxpayers;

  • Ban taxpayers from contributing to their IRAs once account balances exceed $10 million;

  • Raise the corporate income tax rate from 21 percent 26.5 percent;

  • Limit the deduction of top corporate officials’ compensation to $1 million for publicly held companies by 2022;

  • Institute a 16.5 percent minimum tax on foreign corporate income;

  • Limit deductions for small businesses that pay their income taxes through the individual tax system;

  • Raise the top individual income tax rate from 37 percent to 39.6 percent for high-income earners and households;

  • Enact a three percentage point surtax on individual income above $5 million; and,

  • Raise the top capital gains rate from 20 percent to 25 percent.

The committee’s outline also includes a provision that ensures “transactions involving cryptocurrency” are included in new tax rules so that cryptocurrency is treated “the same as other financial instruments … to prevent taxpayer abuse of the rules.” According to Bloomberg, the digital currency industry is not too worried by this proposal.

That fact could save some Democratic votes since, as a reminder, some House Democrats were up in arms last month when the chamber included a provision crypto tax provision as part of a physical infrastructure bill.

But other Democrats could revolt.

As Politico reported, the House outline is a far cry from what Senate Finance Committee Chair Ron Wyden (D-Ore.) — who will write that chamber’s tax bill — wants. This morning Politico said, “The top House and Senate tax writers diverge on how aggressively to hit the wealthy.” Chair Wyden wants more significant tax increases than the House has called for.

Politico also noted, “A group of lawmakers from high-tax states including New York and New Jersey has vowed to oppose the reconciliation bill unless their constituents get relief from a $10,000 limit on the state and local tax deduction passed by Republicans in 2017.” There is nothing in the House draft providing for that refund, though Chairman Neal has indicated an interest in working with the group to find ways to address the issue.

The House Ways and Means Committee draft contains measures that lawmakers say would control drug prices. The House Energy and Commerce Committee’s bill does as well. This provision is another pain point for some Democrats. Three Democrats on the Energy and Commerce panel already have come out against drug pricing provisions. As The Hill reported, Reps. Kurt Schrader (D-Ore.), Scott Peters (D-Calif.), and Kathleen Rice (D-N.Y.) all have said they oppose what the committee has written.

Unfortunately for Speaker Pelosi, tax issues and drug pricing are not the only issues dividing Democrats on the legislation.

A New Era for Tech Oversight

The House Energy and Commerce Committee has proposed spending $1 billion to create a bureau at the Federal Trade Commission (FTC) that would focus on data privacy. As Politico has pointed out, that amount is more than three times the FTC’s entire current annual budget. The bureau would be “dedicated to stopping unfair and deceptive acts and practices related to privacy violations, data security incidents, identity theft, and other data abuses.”

Rep. Jan Schakowsky (D-Ill.), chair of the Energy and Commerce Subcommittee on Consumer Protection and Commerce, wrote the provision, which calls for “hiring and retaining technologists, user experience designers, and other experts.” Politico reminded readers that, in 2019, Schakowsky called it “shocking” that the FTC only had 40 full-time employees dedicated to privacy and data security, compared with about 500 at the U.K.’s Information Commissioner's Office.

In the background of this debate is a new survey by Data for Progress that found a majority of U.S. voters want more oversight. Specifically, a majority would support a tax on technology companies that collect and profit off using consumers’ personal data.

No Democrat has forcefully come out against the FTC provision, but some in the caucus don’t like other plans in the Energy and Commerce bill.

As The Hill reported, six moderate Democrats have criticized policies in the bill that they say are aimed at “targeting the U.S. oil, natural gas, and refining industries.” These provisions include a methane fee on pollution from the oil and gas industry and increased payments for drilling on public lands. The lawmakers said, “We firmly believe that the budget reconciliation bill should not unduly disadvantage any industry, and oppose the targeting of U.S. oil, natural gas, and refining …”

These are just some of the competing interests that Speaker Pelosi has to address. She is likely to need the help of the White House to manage them. That’s why President Joe Biden met with Sen. Sinema this morning and Sen. Manchin this afternoon, and plans to ramp up his engagement with Democratic legislators in the days ahead.

Can he change hearts and minds? We’ll see.

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