Two weeks into the critical pre-Memorial Day congressional work period, the Democratic domestic agenda remains stuck in neutral. Bipartisan energy talks continue on a steady if still-superficial basis, with no sign of near-term resolution. There is no clear path forwardon stalled COVID funding or the Ukraine supplemental aid that Dem leaders hoped might break the immigration-driven impasse. And a bombshell leak of a weighty Supreme Court decision sucked the political oxygen out of the room, shaking up the immediate floor schedule and potentially reorienting Democratic priorities in the run-up to the midterm elections, another reminder that events have a way of interceding.
In last week's note we explored the bipartisan energy talks, where they came from, and what the possible outcomes might be. This week the conversation in Washington has turned from scope and substance, which remains at once sprawling and preliminary, to the motivations behind them. Some Democrats fear (and many Republicans hope), this is just a ploy by Manchin to string things along until it's too late. The more credulous view is that the folks involved represent the middle-out sort of legislating that gave us the post-election COVID relief package, as well as the bipartisan infrastructure law, both of which looked like similarly trivial efforts when talks began. While the odds of a bipartisan energy package of any sort ─ let alone one involving a robust tax title ─ before the elections is extremely unlikely, as I told the Houston Chronicle, these talks bear watching because they are likely to set the terms for what policies might be on the table under the balance of power most expect to see after November, especially if reconciliation fails to clear the decks on clean energy incentives.
At the end of the day, motives are incidental if the effects are the same. Good faith wheel spinning is still wheel spinning, and with time winding down the President and Democratic leaders will have to act if they want to ensure the clock doesn't run out on reconciliation. The problem, of course, is that after a year-long public and private pressure campaign, personal relationships have been frayed to the point where there is a healthy fear of provoking Manchin or otherwise doing anything heavy-handed that might prompt him to close the door on a partisan bill. At least for now, Democrats are resigned to letting these talks run their course. But the later we get in the legislative calendar, and the more the policy conversation is pulled in the direction of midterm politics and messaging, the less time, energy, and bandwidth is left to salvage what’s left of the erstwhile Build Back Better agenda.
Things are looking bleak enough that even industry groups whose priorities are incorporated in the BBB tax package are seeking a sturdier vessel. As discussed in previous weeks, a revenue vehicle is a precious thing in Washington, and with Congress poised to begin negotiations to resolve differences between the House and Senate versions of China competitiveness legislation, backers of the research and development (R&D) tax credits are scrambling to hitch a ride for their amortization fix after missing out on the March omnibus and stalling out in reconciliation. A non-binding motion to instruct conferees on preserving full and immediate expensing for R&D was offered and adopted on a wide bipartisan basis, 90-5, after a strong advocacy push by the coalition. Meanwhile, the top tax-writers on the Senate Finance Committee, conferees themselves, are pushing for inclusion of the so-called FABS Act which would provide tax incentives for domestic semiconductor manufacturing. And a bipartisan, bicameral group of lawmakers is pushing for a fix related to the LIFO accounting method stemming from the semiconductor shortage plaguing the automotive industry, rounding out of the suite of policies that fit under the broader rubric of innovation, competitiveness, and supply chain resilience. While none of these moves are dispositive when it comes to the fate of reconciliation, it reflects rising anxiety among stakeholders that this may be the last opportunity as the window for legislative action dwindles by the day. By the same token, expect the drumbeat around tax extenders and a potential lame duck package to build in the coming weeks and months if the White House does not shift reconciliation talks into high gear.
[This is an excerpt from the May 6 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.]