Domestic Agenda On Ice as DC Looks Abroad
Reconciliation headwinds courtesy of Russia, China, and the power of negative thinking
The past week in Washington served to reinforce the back burner status of efforts to reboot elements of the Biden domestic agenda via budget reconciliation. With the conflict in Ukraine monopolizing Congress' immediate attention, and fallout from a global retreat from Russian goods roiling energy markets, lawmakers have been focused on the dueling priorities of penalizing Putin's aggression while seeking to seeking to soften the blow to consumers at the pump. And while last week's passage of the omnibus government funding bill represented the last truly must-pass item before the November midterms, nominally clearing the decks to salvage what's left of the Biden agenda, Congress appears poised to double down on the international focus, limbering up for a formal bicameral conference on China-minded competitiveness legislation. All of which pushes the realistic timeframe for movement on a potential reconciliation package well into late spring at the earliest, with significant back-end pressure in the form of August recess and the home stretch of a heated general election.
The most urgent topic facing Congress remains the American response to the Russian invasion of Ukraine, which has prompted a number of overlapping executive actions and legislative proposals aimed at sanctioning Putin and his allies and downgrading the terms of Russia’s trade relationship with the United States. The House this week passed its most recent sanctions package and removal of Russia’s “Permanent Normal Trade Relations” status on an overwhelming bipartisan basis, though there likely remain some particulars to be worked out in the Senate. Though public opinion polling shows these actions to be wildly popular with the American people, the net effect of the broader freeze-out of Russian exports has been a dramatic spike in energy prices. Fearing these price shocks will impact their midterm fortunes, Democrats have offered a variety of ideas to lower costs or otherwise make consumers whole. While most of the proposals being floated—from windfall taxes on oil companies to gas tax holidays and rebates they are designed to finance—amount to dead-end election-year messaging gambits, they do underscore the preciousness of the scarcest resource in Washington: a moving tax vehicle. As we saw in the context of the recent omnibus, there is a strong appetite among stakeholders to move various tax provisions, from expiring TCJA and COVID relief policies to perennial so-called extenders. But with the government funded through September, and an inevitable continuing resolution to get beyond the midterms, there simply isn’t an obvious place to hitch a ride. And should reconciliation efforts falter, the best hope may be a lame duck bill that merely continues the status quo.
What is increasingly clear is that the next major order of legislative business for Congress will be resolving differences to the chambers’ respective competitiveness bills, what the Biden Administration has dubbed the “Bipartisan Innovation Act.” With Majority Leader Chuck Schumer (D-NY) filing cloture on the motion to proceed to the House-passed America COMPETES Act, the Senate is poised to get onto the bill, swap the language for that of its own USICA legislation, and send it back to the House, which can motion to disagree and request a conference. The procedural hoops are likely to eat up the final weeks of the work period, setting up a formal conference that begins in April and stretches potentially into May. Between this and the Senate focus on the historic Supreme Court nomination of Judge Ketanji Brown Jackson, the idea of Congress and the administration having the bandwidth to make progress elsewhere in the interim is highly unlikely. Which is to say that May and June become the critical window for a breakthrough on Democratic efforts to wrangle 50 votes for a narrow party-line package.
The one bit of good news for reconciliation-watchers this week came in the form of a Wednesday Senate Finance Committee hearing on prescription drug prices. While a committee hearing wouldn’t ordinarily merit mention, this one was meant to build out the record on a core element of Biden's rebooted agenda, satisfying the desires of Senator Joe Manchin (D-WV) to see any policies go through a bipartisan committee process. In a letter to his colleagues last week, Leader Schumer promised that the Finance hearing would kick off a series of such committee activity on Democratic efforts to lower costs, the newfound auspice for budget reconciliation.
These small signs of motion notwithstanding, Democratic nerves are clearly fraying. In comments to Business Insider on Tuesday, Senator Dick Durbin (D-IL), the chamber's #2 Democrat, expressed pessimism and frustration, "assuming" that reconciliation would not happen, and saying it would "surprise" him if it does. These remarks are notable not because Durbin has any special insight into or role in the success or failure of a bill, but because the gloom and doom narrative, especially coming from a member of leadership, can easily become self-fulfilling. If Democrats internalize the narrative that a slimmed down package isn't possible, they'll inevitably be proven correct. It's worth noting that the attitude also lets their squeaky wheel colleagues off the hook by throwing in the towel before the proposition was ever truly tested. The path to a deal remains clear but forging one will take clarity and assertiveness from the White House, not the griping or cajoling of Senate leaders.
[This is an except from the March 18 PRG weekly reconciliation update. Read the rest of my firm’s reconciliation updates here. And if you like my “Bottom Line” analysis, check out my moderated discussion with my colleague Yasmin Nelson, who pens “The Breakdown” newsletter. Watch on Youtube or listen wherever you get your podcast.]