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October 4, 2021

What to expect in Washington (October 4)

A House vote on the bipartisan infrastructure framework (BIF) passed by the Senate in early August is again linked to reaching agreement between moderate and progressive Democrats in the House and Senate on a budget reconciliation bill, and the next target is October 31, when the 30-day extension of the highway authorization cleared by the House on Friday and Senate on Saturday expires. In a House Democratic caucus meeting Friday, President Biden, rather than push for the votes to pass the infrastructure bill, acknowledged that it is linked to reconciliation, which progressives insist upon. The debate over the politically feasible size of the larger spending bill that had been mostly conducted behind closed doors spilled into the open last week as Senator Joe Manchin (D-WV) set a $1.5 trillion ceiling for his support and, reflecting that, President Biden said the new target is $1.9 trillion-$2.3 trillion. Progressives, with leadership support, wanted $3.5 trillion. Another deadline, on government funding, is set for December 3.

“We must pass BIF well before [October 31] – the sooner the better, to get the jobs out there...” House Speaker Nancy Pelosi (D-CA) said in an October 2 letter to members. “Out of respect for our colleagues who support the bills and out of recognition for the need for both, I would not bring BIF to the Floor to fail [last week]. Again, we will and must pass both bills soon.”

While the end-of-the-week sprint forced more intense discussions over the size of the bill and set another month’s negotiating time before a new self-imposed deadline related to infrastructure, moderates, who felt its passage was overdue, were incensed at another House vote delay to wait for progress on reconciliation. Senator Kyrsten Sinema (D-AZ) issued a statement critical of the long-running interplay between the two bills at the insistence of progressives – “I have never, and would never, agree to any bargain that would hold one piece of legislation hostage to another” – and facilitated by leadership. “Democratic leaders have made conflicting promises that could not all be kept – and have, at times, pretended that differences of opinion within our party did not exist, even when those disagreements were repeatedly made clear directly and publicly,” she said. Rep. Josh Gottheimer (D-NJ), a moderate, said, “I’ve been working around-the-clock to pass the bipartisan infrastructure bill, legislation we helped craft back in April with my Senate colleagues. But a small far left faction of the House of Representatives undermined that agreement and blocked a critical vote on the President’s historic bipartisan infrastructure bill.”

The main questions going forward are what size spending package moderates and progressives can agree to and what will need to be cut to reduce the cost of the bill, either by narrowing the scope to exclude some issues or retaining the current broad scope and shortening the duration of provisions. Some tax proposals from the House Ways & Means Committee bill may be cut to match the lower revenue need. Senator Manchin has suggested doing a $1.5 trillion bill now with Democrats pushing for more later, and former Senator Claire McCaskill (D-MO) predicted a two-step process on MSNBC September 30, saying, “There will be another reconciliation bill come April or May.”

“White House officials are debating whether to drop many cherished priorities from President Biden’s sprawling economic package or keep a fuller range of initiatives in dramatically reduced form…” the Sunday Washington Post reported. “While many senior Democrats are urging Biden to choose a handful of programs and execute them well, this option is complicated by a lack of consensus about which priorities should prevail. Meanwhile, no lawmaker wants to see his or her favored program cut entirely from the legislation.”

Similarly, the Wall Street Journal reported, “Democrats, working to unite around a far-reaching social policy and climate bill, are weighing two different approaches to reduce its overall cost: eliminating proposed programs entirely or cutting their duration.” The story said passing measures on areas ranging from tax credits for electric vehicles to lowering the price of prescription drugs is a way to address many of the party’s favored issues before the election, even if they would then expire within a few years. Senator Tim Kaine (D-VA) said of options facing Democrats, “You could take pieces out, or you could start a piece in year 2, rather than year 1. Or you do some for five years, not 10, and count on it being so popular that when you come back in year six, well of course we’ll want to do it.”

Having provisions sunset or change in future years and counting on the likelihood of future Congresses to extend them or stave off changes is a fixture of legislating, including in the TCJA, which was enacted with a sunset of provisions for individuals after 2025 and various tax cliffs for corporate changes, including the scheduled changes to Section 163 interest deductibility and Section 174 R&D expensing after this year.

Another WSJ story discussed the effects on the largest closely held businesses of the Ways & Means Committee bill’s provisions to limit the Section 199A deduction, add a 3% surcharge on income over $5 million, expand the net investment income tax (NIIT), and increase the top marginal tax rate to 39.6% from 37%. The story cited Ways & Means Chairman Richard Neal (D-MA) as saying he is starting to hear concerns from business owners. “There’s some unease, that’s for sure,” he said. “We’re trying to respond to some of the concerns they’ve raised and, if they’re legitimate, we’d obviously be interested in repairing them.” The story also cited concerns by some that passthroughs could have a more difficult time competing for employees against companies that face the corporate tax but don’t pay dividends.

Progressives are reluctant to shrink the $3.5 trillion target they have long said is itself a compromise from greater spending they wanted. On CNN’s State of the Union, Rep. Pramila Jayapal (D-WA) said $1.5 trillion is “not going to happen… Because that’s too small to get our priorities in. So, it's going to be somewhere between 1.5 and 3.5. And I think the White House is working on that right now, because, remember, what we want to deliver is childcare, paid leave, climate change, housing.” The White House had been trying to get moderates to support $2.1 trillion last week. Rep. Jayapal downplayed starting with a topline number and, like the President, said the focus is on the need. “We’re not thinking about the number. And the president said this to us too. He said, don’t start with the number. Start with what you’re for.”

On NBC’s Meet the Press, Senate Budget Committee Chairman Bernie Sanders (I-VT) said of progressive’s vision for the spending bill, “this is not a wish list. This is what the working families of this country want and what the economy needs… The question now is whether the Democrats can come together...”

The full House is out of session in Washington, D.C. for Committee Work Weeks this week and next. The Senate is in this week but out next week for the Columbus Day State Work Period. Congress faces an October 18 must-act date on the debt limit. President Biden will speak about the issue this morning.


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Washington Council Ernst & Young
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