September 17, 2021
What to expect in Washington (September 17)
The House Ways & Means Committee reported out its tax increase, green energy, and drug pricing portions of the Build Back Better Act budget reconciliation bill with relative ease on Wednesday, September 15 – beating back Republican amendments to strike provisions, including international tax increases, and losing the vote of only one Democrat, Rep. Stephanie Murphy (D-FL) – and Energy & Commerce reported provisions on energy and health care after a more difficult markup and without the prescription drug pricing subtitle following “no” votes from three moderate Democrats. What’s next?
The House Budget Committee will assemble the committee portions of the bill next week, mostly as a formality, and a focus will be on House-Senate leadership negotiations to determine what moderate Senators can support. It is possible Speaker Pelosi holds onto the reconciliation legislation until a deal can be worked out with the Senate, following which changes to the current package would be made at the Rules Committee before being brought to the House floor. House Budget Chairman John Yarmuth (D-KY) said in the Washington Post that the House would vote on a measure first: “I think that it looks right now like we’ll probably proceed to do our own bill and see if we can get 218 votes in the House to pass it, rather than wait for the Senate to act.” Bloomberg reported Senator Ben Cardin (D-MD) as saying the Senate would likely take whatever passes the House, amend it, and send it back, but he doesn’t see it happening this month. “It’s going to take some time,” Cardin said, adding that “as you put out one area, another crops up.”
As Senate Majority Leader Chuck Schumer (D-NY) said this week, there will be “a lot of intense discussions and negotiations over the next few weeks.” Key moderate Senator Joe Manchin (D-WV) has publicly discussed supporting a bill of no more than $1.5 trillion, a corporate tax rate no higher than 25%, capital gains rate of 28%, and 15% GILTI minimum tax. It is anticipated that the size of the House bill will have to be scaled back, requiring less tax revenue, but what will be cut has yet to be decided.
President Biden held a call with Speaker Pelosi and Leader Schumer September 16 after meeting with Senators Manchin and Kyrsten Sinema (D-AZ) a day earlier. In addition to the roadblocks on reconciliation, lawmakers must address the Senate-passed infrastructure bill, which faces a self-imposed House deadline for passage by September 27, the expiration of government funding on September 30 and the need to address the federal debt limit before Treasury exhausts extraordinary measures, maybe in October.
Senate – Committee chairmen provided an overview of their priorities for a Senate reconciliation bill to the Senate Democratic Caucus on September 14, but it is unclear when and how a Senate tax package could emerge given the leadership-driven nature of the negotiations. Senator Schumer suggested there were committees that didn’t agree with their House counterparts without naming them. Chairman Neal previously acknowledged differing views with Finance Chairman Ron Wyden (D-OR), who has released standalone proposals on issues like a 2% excise tax on stock buybacks, partnership tax reforms, mark to market treatment for capital gains, changes to the tax treatment of derivatives, and replacing multiple energy tax incentives under current law with a streamlined system focused on clean electricity and transportation and energy efficiency. Ways & Means proposes extensions of current energy provisions, plus some new credits. (Many House details are provided in this JCT report.)
Roll Call reported: “The two chambers have been heading in different directions on energy tax policy all year, and have yet to make any significant headway in compromising with just weeks left now to resolve their differences. ‘Under our proposal for the first time, tax savings would be tied to reducing carbon emissions,’ Finance Chair Ron Wyden, D-Ore., told reporters. He said Ways and Means has ‘moved a ways in our direction’ but ‘they still have not put in place the game changer … if you still get your tax break without tying the tax break to actually reducing carbon emissions in this country.’”
President Biden September 16 delivered a speech continuing to make the case for increasing taxes on high-income individuals and companies, some of which he said don’t pay any taxes. Similar to Chairman Neal’s comments during the markup, the President said, “I’m not out to punish anyone … All I’m asking is you pay your fair share.” The speech was seen by some as speaking to moderate Democrats hesitant to embrace the emerging package. One of them, Rep. Murphy, the only Democrat to oppose the Ways & Means tax package, said she remained “optimistic that the comprehensive reconciliation package will be appropriately targeted and fiscally responsible—paid for by tax provisions that promote fairness but do not hurt working families.”
Health – The E&C prescription drug pricing subtitle did not advance following “no” votes from three moderate Democrats – Reps. Scott Peters (D-CA), Kurt Schrader (D-OR) and Kathleen Rice (D-NY), who earlier this week put forward their own, narrower policy that would only allow negotiation for a small subset of drugs in Medicare Part B that have no competition. While drug pricing language identical to the failed provision successfully advanced through Ways & Means, Speaker Pelosi can afford to lose no more than three Democratic votes to get the final package through on the House floor. Two other moderate Democrats – Reps. Murphy and Lou Correa (D-CA) – also signed onto the Peters plan, throwing a potential wrench in floor passage of the provisions. In the Senate, Finance Chairman Wyden has suggested he is likely to offer a somewhat different proposal for allowing Medicare to negotiate drug prices, potentially pegging maximum negotiated rates to domestic as opposed to international prices.
The Wall Street Journal reported, “Ahead of the vote, Mr. Peters said any pricing provision needs to both lower out-of-pocket costs while also supporting further incentives for private investment and innovation. Democratic leaders will need to find a consensus, given their narrow margins in both chambers.”
Financial information reporting – The Administration has also revived the push for expanding financial information reporting to the IRS, which was part of the Biden administration budget proposal then diluted as part of infrastructure negotiations before being dropped altogether. During the Ways & Means markup, Chairman Neal announced that, while the base bill includes IRS funding and taxpayer compliance provisions, he is in discussion with the Administration on reporting proposals that target sophisticated tax avoidance and evasion, including a comprehensive reporting regime aimed at wealthier taxpayers who are able to use complex transactions to avoid taxes. A letter to Neal from Treasury Secretary Janet Yellen said, “a reporting regime that is broad-based will better assist the IRS in targeting enforcement priorities on the high-end who accrue income in opaque ways.” President Biden said September 16 he is asking “just for two pieces of information from the banks of these folks … the amounts that come into their bank accounts and what amounts go out of their bank accounts, so that the wealthy can no longer hide what they’re making and they can finally begin to pay their fair share of what they owe. That isn’t about raising their taxes. It’s about the super-wealthy finally beginning to pay what they owe…”
Deadlines – Still looming are the expiration of government funding on September 30 and the need to address the debt limit, with a likely must-act date in October. Politico reported: “The House Rules Committee is scheduled to meet Monday to tee up the stopgap spending bill for a floor vote next week. Text of that funding measure has not been released, but the patch is likely to keep government agencies open into December, setting up another critical funding deadline ahead of the holidays. Top lawmakers are leaning towards Dec. 10 for the end date but have also left open Dec. 3 as a possibility. While they prepare the bill for floor action, majority party leaders are deciding whether to pair the must-pass funding package to avoid a shutdown with a measure to tackle the approaching debt cliff…”