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February 14, 2022

What to expect in Washington (February 14)

The House is out of session this week but there are committee hearings. The Senate convenes today and will hold a procedural vote at 5:30 p.m. in relation to a postal reform bill (H.R. 3076) that some members say is an example of bipartisan cooperation flourishing since the Build Back Better Act (BBBA) has been set aside. There is still significant attention on the February 10 report of 12-month inflation rising to 7.5%, the highest in 40 years, and related political concerns of Senators in tough races like Mark Kelly (D-AZ), Maggie Hassan (D-NH), Catherine Cortez Masto (D-NV), and Raphael Warnock (D-GA), who are among those who have proposed a gas tax holiday (S. 3609) through the end of the year to provide economic relief to families.

A pair of analyses in the Sunday Washington Post touched on the political perils of inflation. The analysis titled, “Republicans may be divided over Trump, but that’s of little solace to Biden and the Democrats,” said “Biden and his team played down the threat of inflation last year, suggesting it was transitory,” and are now under pressure to address the issue. “For now, Biden is telling voters he feels their pain while vulnerable Democratic senators are trying to make clear that they recognize the financial pinch their constituents are feeling,” including through the gas tax holiday bill.

A second analysis, “Vulnerable Democrats plan to run on kitchen-table issues, but some in party want voters focused on Trump, too,” said “Democrats heading into turbulent reelection battles want to focus their campaigns on the bread-and-butter issues that appeal to swing voters,” citing the gas tax holiday introduced by a quartet of Senators that “represents the most endangered Senate Democrats and could decide the Senate majority next year: If all four win, Republicans probably have no path to getting the 51 seats. These Democrats say inflation is a big concern for their voters…”

Some of the kitchen-table issues identified in the analysis:

  • Senator Kelly: “the price of gasoline, the price of ground beef or groceries or prescription drugs;”
  • Senator Cortez Masto: health care, access to health care, prescription drug negotiations;
  • Senator Warnock: extension of child tax credit expansion, high costs Americans are facing generally.

Republican reaction – Last week, Senate GOP leader Mitch McConnell (R-KY) called inflation and the lack of a plan to address it Democrats’ “biggest liability going into the fall.” Republicans remain critical of the BBBA and some say it would exacerbate inflation. On Fox News February 11, House Ways & Means Committee Ranking Member Kevin Brady (R-TX) said “President Biden’s ‘inflation tax’” is hurting American families and, “Inflation this year, as more Americans are getting pushed into higher tax brackets together with higher prices, costs an average family almost $5,000 last year. That’s a huge amount.” Rep. Brady further said, “In Build Back Better, there are crippling tax hikes that will slow investment in the U.S., including into the plants and technologies that can help us work through the supply chain problems.”

An editorial critical of the gas tax proposal in the Saturday Wall Street Journal (WSJ) said, “The contradictions of climate politics keep piling up, and the latest is a call from Democratic Senators running for re-election this year to suspend the federal gas tax.” It also said, “Senate Democrats who want to suspend the gas tax support President Biden’s Build Back Better Act that would impose myriad new taxes on U.S. oil and gas.”

BBBA – On Friday, it was reported the Biden administration is considering retooling the BBBA as a deficit reduction measure to win the support of Senator Joe Manchin (D-WV), who continues to raise concerns about inflation, the $30 trillion federal debt, and the BBBA’s temporary provisions that mask future costs.

Senator Manchin last week reupped his call for tax rate increases: 25% corporate rate, 15% corporate minimum tax, 28% top capital gains rate plus no carried interest. The WSJ this morning reported him as saying, “Why can’t we just get a good solid tax plan that works?... That’s the first thing to do.” Senator Kyrsten Sinema (D-AZ) opposes rate increases, which bumped them from the House-passed BBBA. “I respect her and what her concerns may be, but I think basically our financial situation is getting worse, not better, so maybe we can take another look at it,” Mr. Manchin said in the report. It further said having tax increases exceed spending in the package is a possible way to win Manchin’s support. And while other Democrats want tax rate increases, some want the party to “focus on established areas with a Sept. 30 deadline for getting the bill through the Senate under expedited rules that let Democrats dodge a filibuster.”

On ABC’s This Week February 13, House Speaker Nancy Pelosi (D-CA) suggested inflation reflects the positive state of employment, the BBBA is already consistent with Manchin’s goals, and other measures are designed to address inflation. “The fact that people have jobs always contributes to increase in inflation. That’s a good thing. … More people having jobs, scarcity of products, which makes the prices go up, and the rest,” she said. “So, when we passed the COMPETES Act last Friday, this was a giant step forward. Now we have to go to conference with the Senate and we will shortly. We’ll send it to the president’s desk. But what that does is addresses the supply chain shortages that we have, and therefore, will decrease inflation.”

She continued, “it’s important to note this about the BBB, the BBB is a deficit reduction bill. It’s a bill that – some people say when you increase the national debt, you increase inflation. Seventeen Nobel laureates wrote that the way the BBB was written with long-term investments and increasing the capacity of people to participate in our success is noninflationary. In addition to that, the Joint Tax Committee – which [has] the imprimatur on all these issues – the [JCT] says that BBB will reduce the national debt by $100 billion in the first 10 years and $1 trillion in the second 10 years. So, what we are doing is – what are the three effects? More people going to work. That’s a good thing. More product to lower the cost … and third, the terms of not increasing the national debt.”

A WSJ story focused on what’s getting done since the BBBA has been set aside, saying, “A “flowering of bipartisanship” in the Senate – on issues like postal reform, competitiveness, government funding, and election reform – “comes about two months after centrist Democratic Sen. Joe Manchin of West Virginia said he would oppose Mr. Biden’s roughly $2 trillion economic and climate package, effectively killing it in the 50-50 Senate with all Republicans opposed.”

Some Republican Senators suggested the bipartisan cooperation reflects the unsuccessful effort to alter the filibuster, while Democrats countered that “the shift is a recognition that narrower bills often have better prospects for passage.” Senator Tim Kaine (D-VA) was quoted as saying, “If you’re willing to hit some doubles, and singles and triples, you can get a lot of stuff done.” The story further said, “Compromise continues to be a tough sell in policy areas that were part of the [BBBA], the Democrats’ package that included provisions on climate, prekindergarten and child care, among other things. Democrats are reluctant to give ground on provisions that they still hope to pass under the reconciliation process...”

Congress – Punchbowl reported that a technical glitch could keep the postal reform bill from getting done this week. The Senate is also expected this week to vote on the House-passed continuing resolution to extend government funding through March 11. Top appropriators February 9 signaled a deal on topline spending numbers for an omnibus appropriations bill to fund the government through the remainder of FY2022 but haven’t announced details, and finalizing an omnibus is expected to take weeks. Both the House and Senate are scheduled to be out of session next week for the President’s Day recess.

Sen. Ben Ray Luján (D-NM), whose absence deprived Senate Democrats of a critical 50th vote, said Sunday he plans to return to Washington in “just a few short weeks,” in time to vote for President Biden’s Supreme Court nominee.

Hearings – The House Ways & Means Select Revenue Measures Subcommittee will hold a hearing on “Examining the Economic Impact of Federal Infrastructure Investment” on Tuesday, February 15 (2:00 p.m.).

Also, on Tuesday, February 15 (10:00 a.m.), the Senate Finance Committee holds a hearing entitled, “Protecting Youth Mental Health: Part II - Identifying and Addressing Barriers to Care.”

On Thursday, February 17 (10:00 a.m.), the Finance Committee holds a hearing, “Spotlighting IRS Customer Service Challenges.”


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