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August 11, 2021

What to expect in Washington (August 11)

The bipartisan infrastructure bill is a done deal in the Senate after a 69-30 vote August 10. The main question is whether Speaker Nancy Pelosi (D-CA) sticks to her insistence that the House won't take up the bill until the Senate passes a massive reconciliation bill reflecting Democratic priorities. Moderate Democrats are pushing for a vote on the infrastructure bill soon, while progressives want the follow-on $3.5 trillion bill passed first. Leadership did announce that the House, in recess since the beginning of the month, will return the week of August 23 to vote on the budget resolution and voting rights legislation.

President Biden August 10 delivered remarks highlighting the benefits of the infrastructure bill. When asked about process and whether a reconciliation bill can come together, Biden said, "I think, over the next month, which is the way it's going to work … they get to the business of seeing how they can make it work, and then come back … and decide exactly what's in that reconciliation bill and how much is going to be spent. I think we will get enough Democrats to vote for it, and I think that the House will eventually put two bills on my desk: one on infrastructure, and one on reconciliation."

Budget — The other element of the two-track process in the Senate, the FY2022 budget resolution, was approved by the Senate 50-49 just before 4 a.m. August 11. It includes reconciliation instructions to various committees to report provisions under their jurisdictions by September 15 (no penalty for missing), including a nominal $1 billion deficit reduction target to the Senate Finance Committee. (A similar $1 billion instruction was included in the FY2010 resolution ahead of the ACA, some of which was enacted under reconciliation, while the FY2018 resolution ahead of the TCJA called for a $1.5 trillion tax cut.)

There is the expectation from Democratic leaders that the Finance Committee will develop $1.8 trillion in investments for families, the elderly and the environment. That will require revenue-increasing or spending cut proposals within the Committee's jurisdiction of at least $1.81 trillion, though not all revenue will come from tax increases (some will come from health and climate). It is also possible the policies cost less than the $1.8 trillion target and require less in revenues or spending cuts. The tax increases that will be proposed to be part of the reconciliation may not be known for a month or more, but a Democratic memo envisions offsets on corporate and international tax reform; tax fairness for high-income individuals; IRS tax enforcement; health care savings; and a Carbon Polluter Import Fee.

The budget resolution provides a fiscal blueprint, but the most practical and impactful element is the reconciliation instructions, which will allow a $3.5 trillion bill to pass with a simple majority vote in the 50-50 the Senate. Budget resolution adoption is preceded in the Senate by the customary "vote-a-rama," which has no time limit (hence the 4 a.m. stop time), and involves the rapid consideration of nonbinding amendments on various issues that don't have a practical outcome in the reconciliation bill but put members on record on issues. Tax amendments considered addressed stepped-up basis, R&D expensing, IRS tax gap enforcement, and the President's pledge not to increase taxes on those earning under $400,000 annually.

Debt limit — The federal debt limit, reinstated August 1, was not addressed in the budget resolution, despite the fact that an increase could be passed with Democratic-only support under the reconciliation process. The Administration is projecting that increasing the limit is a shared responsibility and Republicans should support it. Treasury Secretary Janet Yellen said August 9: "The vast majority of the debt subject to the debt limit was accrued prior to the Administration taking office. This is a shared responsibility … "

The August 10 Wall Street Journal reported: "While Democrats could amend the budget plan to include a debt-limit increase, the more likely path is that the issue is addressed in September … One idea Democrats are considering is a stand-alone vote to suspend the debt limit … which could put pressure on Republicans to support the measure or risk rattling financial markets if the vote fails. Lawmakers could also attach the measure to another must-pass bill, like government funding, to force the issue." The WSJ subsequently reported Senator Ron Johnson (R-WI) as saying that some 46 Republicans have signed on to a letter saying they won't support raising the debt limit.

Congress — Thirteen-term Rep. Ron Kind (D-WI), a longtime member of the Ways & Means Committee, announced he would not seek reelection, and the seat is seen as a challenge for Democrats to hold in the 2022 elections when they are already facing the historical challenge that the party in control generally loses seats. The Washington Post noted, "Kind is one of seven Democrats sitting in a district that favored Trump last year, while nine Republicans represent districts that favored President Biden in 2020."

Publication note: With both chambers in recess, What to expect in Washington won't be published until Congress returns in September, though EY Alerts will be issued as events warrant.


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For additional information concerning this Alert, please contact:
Washington Council Ernst & Young
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