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Congress is back in Washington this week, negotiations over how to shrink the $3.5 trillion-plus House reconciliation bill continue, and much of the attention over the weekend was focused on how climate/energy proposals may be cut back. The New York Times reported that the $150 billion Clean Electricity Performance Program “will likely be dropped” because Senator Joe Manchin (D-WV), who was once thought to only want to rewrite the proposal, now strongly opposes it. “White House staffers are scrambling to calculate the impact on emissions from other climate measures in the bill, including tax incentives for renewable energy producers and tax credits for consumers who purchase electric vehicles,” the report said.

The Washington Post reported October 16 that an alternative to the CEPP program under consideration “would establish a scaled-back voluntary emissions trading system among aluminum, steel, concrete and chemicals manufacturers that would provide federal funding to help companies curb pollution.”

On energy generally, the Post said, “To reach their goals, Democrats have tucked into their unfinished economic package a flurry of initiatives, including the elimination of dozens of tax programs that subsidize fossil fuels. Those efforts, championed chiefly by Sen. Ron Wyden (D-Ore.), could accomplish significant improvements on their own, perhaps by incentivizing clean energy and cutting power sector emissions by roughly 70 percent, he said, over the next seven years. ‘The Clean Energy for America Act, because of the dramatic savings, the dramatic emissions cuts in the power sector, is the linchpin,’ stressed Wyden, the chairman of the tax-focused Senate Finance Committee, referring to his section of the legislation.”

Axios reported October 17 that Senator Manchin “has told the White House the child tax credit must include a firm work requirement and family income cap in the $60,000 range.” The report noted that “progressives would have a hard time accepting the changes Manchin is demanding” that would “fundamentally alter a program the president funded for one year in the $1.9 COVID-19 relief package passed in March.” (The expanded CTC expires at the end of 2021.) Manchin is “open to Biden’s $450 billion plan to subsidize day care and offer free universal preschool but wants to impose stricter income caps on the day care subsidies while keeping preschool free for everyone, as it already is in West Virginia,” the report said. He is less interested in the $225 billion-$450 billion paid family leave proposal or $400 billion program for elder care.

By way of review, CNN reported late last week that Senator Kyrsten Sinema (D-AZ) said both she and Manchin told President Biden they cannot guarantee their support for even a $2.1 trillion bill. Manchin raised concerns over the proposed expansion of Medicare and tuition-free community college; opposed new paid family and medical leave provisions; called for new benefits to be means-tested to limit the eligibility to those with lower incomes; and rejected calls by Democrats to include aggressive climate measures.

An NYT story on public perceptions of the reconciliation effort said, “Polls show that individual components of the legislation — including increasing federal support of paid leave, elder care and child care to expanding public education — are popular among voters. But beyond being aware of a price tag that is already shrinking, few voters can track what is still in contention to be part of the final package, as the process is shrouded in private negotiations… It remains unclear which sacrifices will have to be made, with lawmakers still at odds over the best strategy for paring down the plan, let alone how to structure specific programs.”

The October 18 Wall Street Journal reported that Mr. Biden and White House officials will continue to hold calls and meetings this week in support of his legislative agenda, the White House said. Democratic leaders have set the expiration of the highway authorization on October 31 as a self-imposed deadline for a reconciliation agreement and a House vote on the bipartisan infrastructure framework (BIF), though some see talks extending into December and being put up against other deadlines facing Congress.

The November 2 gubernatorial election in Virginia is factoring into the urgency for bills to be enacted. Politico reported Senator Mark Warner (D-VA) as saying, “The single best thing that can happen for Terry [McAuliffe] is either get the infrastructure bill or” a China competitiveness bill, both of which passed the Senate earlier this year but have stalled in the House. “Internal squabbles on the Democratic side are preventing the president from a win on either one of those,” he said.

Health – The WSJ report said concerns by Senators Sinema and Robert Menendez (D-NJ) and some centrist House Democrats are complicating the proposal to allow Medicare to negotiate with drug companies to lower the cost of prescription drugs. “One sticking point in the drug-pricing talks has been a provision of a Democratic House proposal calling for an excise tax of up to 95% on certain eligible drugs when federal negotiators and drugmakers can’t agree on the price,” the report said. It cited Rep. Scott Peters (D-CA), a cosponsor of a proposal to allow much narrower Medicare negotiations with drug companies, as saying centrist Democrats are also pushing back on efforts to permit negotiations on drugs during the period known as “exclusivity,” when drug companies are protected from generic-drug competition.

Tax – The WSJ separately reported on changing attitudes and perceived political risks among Democrats on the issues of raising taxes. An October 16 story said, “Many Democrats are willing—even eager—to enact tax increases on high-income households and big businesses and campaign on them in next year’s midterm elections, embracing a stance that the party has struggled with in the past.” Chairman Wyden was quoted as saying, “It used to be that any conversation about taxes, the political consultants say to Democrats, don’t go there,” but now upon mention of proposals like an annual tax on billionaires’ unrealized capital gains, “People say, of course, how come that wasn’t done a long time ago?”

Congress – The Senate is back with a vote on a judicial nominee at 5:30 p.m. today and plans to consider voting rights legislation this week. The Finance Committee holds a hearing on “Health Insurance Coverage in America: Current and Future Role of Federal Programs” on Wednesday, October 20, 2021 at 10:00 a.m. The House is scheduled to reconvene on Tuesday and consider several bills on the suspension calendar. Ways & Means has no hearings scheduled.

On Friday, October 22 (12:00 p.m. ET), is the EY Webcast “Tax in the time of COVID-19: update on legislative, economic, regulatory and IRS developments.” Register.

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