Slouching Towards Crunch Time
Congress struggles to clear the decks as Dems limber up for a reconciliation reboot
There was little in the way of reconciliation news this week as Congress hurtled toward a two-week holiday recess, though significant developments were hardly expected with leadership attention otherwise occupied. Most prominently, Biden notched a signature achievement with an historic (and bipartisan) vote to confirm Judge Ketanji Brown Jackson, and the Senate finally resolved its disagreements over Russian trade and energy sanctions. But their conspicuous inability to tie up various other loose ends, ranging from a COVID funding package to the procedural steps to go to conference on competitiveness legislation, hints at a crowded work period upon their return to Washington, putting further pressure on the timeline for reviving the Biden agenda.
As we have discussed in recent weeks, the six-week stretch from late April to Memorial Day is a critical window for Democrats to reach some sort of consensus on a path forward for a reconciliation bill--call it a framework, an agreement in principle, an outline--that will provide some level of clarity and pave the way for drafting, procedural vetting, and ultimately floor consideration. While the legislative process could move quickly if and when the political will materializes, it seems unlikely at this rate that we would see consideration before the end of May, making the June work period the most likely target for passage should things go according to plan.
Beyond sheer inertia, and strategic ambivalence from a once-bitten White House, the biggest variable lies on the pay-for side. It's clear what any agreed-upon raisers would go toward, in addition to requisite deficit reduction--a consensus package of roughly $300 billion in clean energy tax incentives, perhaps more in climate-related spending (the House-passed bill contained $200 billion, though Energy committee chair Joe Manchin (D-WV) may want to start from scratch), and up to $400 billion in health policy priorities, namely extension of ACA premium support and closing of the Medicaid coverage gap. But despite a $2 trillion pool of offsets from the House-passed Build Back Better bill (RIP), themselves largely designed to elide senatorial concerns, it remains unclear which of these mechanisms would be incorporated in a reconciliation reboot, which would have to be finessed, and which might be left behind.
Manchin, for his part, has long approached this exercise as one that begins with determining the source and scale of revenue changes. In an interview with ABC News in June 2021, during the first wave of haggling over BBB, Manchintold Jonathan Karl, "[L]et’s see when we do all that and make the adjustments [to the tax code], how much money do we have. This is how you run your household. It’s how I run my household or small businesses or large businesses. How much can we invest and how much return do we get on that investment?" To this day he has continued to frame reconciliation chiefly as a means to reform the tax code, voicing support for straightforward rate increases on corporations, high income individuals, and investors as a means of paring back what he sees as the excesses of the Trump tax cuts.
Enter Senator Kyrsten Sinema (D-AZ), who--while less strident in her opposition than Manchin--has cut an enigmatic figure throughout this process. While Sinema was always nominally supportive of the original package's social spending and climate programs, it was her resistance to rate hikesthat helped limit its overall size and prompted House tax-writers to build a revenue Rube Goldberg machine in their version of the legislation. She has been conspicuously quiet since the passage of the House bill, allowing Manchin speculation to drive the Beltway chatter, though recent reporting by Axiossuggests her private comments have been pessimistic toward the odds of a bill materializing. Private punditry aside, in comments at a National Federation of Independent Business (NFIB) tax event earlier this week, Sinema expressed openness to a "targeted" reconciliation package that is "responsibly offset," citing protection of qualified business income (QBI) from pass-through entities as one of her priorities, and indicated that she'll be listening intently as leaders seek to restart discussions.
Now there is nothing inherently incompatible about Manchin and Sinema's respective positions, and indeed they are directionally in sync. The practical question is when and how they are made to flange up, which will require strong but tactful direction and leadership. The moderate senators' ham-and-egg routine has succeeded in dramatically limiting the size and scope of a potential package in mutually agreeable ways, leaving its remnants in a range they could each conceivably support, but unless and until leadership and the administration can nudge them onto the same page, their differences stand to be what keeps a renewed effort from getting off the ground. Clarity around pay-fors will be necessary for any meaningful breakthrough on reconciliation, and must be a top priority heading into a make-or-break post-Easter work period.
[This is an except from the April 8 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.]