The State of Reconciliation is Fraught
Biden reframes the agenda as Manchin cracks open the door
This week President Biden used his first official State of the Union address to reframe his domestic agenda around fighting inflation, employing subtle rhetorical shifts to emphasize elements of the erstwhile Build Back Better package that may yet find purchase with Senator Joe Manchin (D-WV). While Manchin initially reacted coolly to the speech when pressed by reporters, by the next day he made clear what he viewed as a potential path forward, echoing a number of the components highlighted by Biden, while laying out for the first time what might satisfy his deficit reduction concerns. Meanwhile, Senator Ben Ray Lujan (D-NM) returned to the chamber on Thursday, entering a Commerce committee hearing to a warm ovation, and restoring the Democratic caucus to the full strength necessary to pass any partisan measures, reconciliation included.
With the war in Eastern Europe re-orienting Biden's address around weighty international themes, the abbreviated domestic policy portion was relegated to the latter half of the speech, with its elements proposed not as a transformative suite of progressive policy goals as in the 2021 joint session, but rather recast as the President's plan for fighting inflation, reducing costs, and as he put it "building a better America," a not-so-subtle nod to the original proposal.
The first pillar of Biden's plan centered around cutting healthcare costs, namely by enacting prescription drug price reforms favored by Manchin, as well as Affordable Care Act (ACA) premium support, a key Democratic priority.
Second, cutting energy costs via climate investments and clean energy incentives, which Biden indicated would save $500 per family. Manchin has repeatedly indicated his openness to this portion of the Build Back Better effort, which has long been presumed to make up the core of any resuscitated reconciliation package.
Third, cutting costs on families via childcare and early education programs, a fundamental plank of BBB, but one that Manchin has expressed resistance to of late.
Biden went on to name-check various other long shot proposals, but the prioritization was unmistakable to anyone who has been following this process as closely as readers of this space.
The speech was less explicit as to how these policies might be paid for, citing the 15% corporate minimum tax on book income, the separate global minimum tax being negotiated at the OECD level, and unspecified loophole closures on wealthy taxpayers.
The rhetorical sops to Manchin were subtle if not downright coded, and the obligatory mention of policies he has publicly ruled out, such as the expanded Child Tax Credit, no doubt informed the irksome response immediately following the speech. But by Wednesday morning, Manchin had given his most positive and explicit statement on reconciliation yet, outlining what he would like to see in any such bill.
In an interview with POLITICO, Manchin reiterated his emphasis on any reconciliation bill as a tax reform effort, paring back what he sees as the excesses of the 2017 tax cuts. Along with prescription drug reform savings, he told the publication, these tax changes would produce a pool of revenue that could be split evenly between deficit reduction and Democratic policy priorities, specifically climate.
Notably, Senator Kyrsten Sinema (D-AZ), the other perennial squeaky wheel within the caucus, expressed openness in the same piece, with her office pointing out that any such proposal "already has enough tax reform options to pay for it." Indeed, with a total of roughly $2 trillion in offsets cobbled together around her revenue concerns, the only real question is which funding mechanisms would stay or go.
While it's still not clear how or when Democrats might seek to engage Manchin on these terms, early indications suggest that key party members would be on board. Progressive Caucus chair Pramila Jayapal (D-WA), a leading voice in the House stand against the bipartisan infrastructure bill and long a BBB maximalist, indicated that her members wanted to achieve as much as possible by whatever means, including the approach suggested by Manchin, stating that "progressives are absolutely committed to trying to deliver as much as [they] can." The Manchin approach also won positive comments from leading progressives like Senator Elizabeth Warren (D-MA) and Jayapal deputy Rep. Katie Porter, along with Democratic whip Senator Dick Durbin (D-IL).
While the proportions laid out by Manchin are sure to cause heartburn within the administration and the democratic caucus, some level of deficit reduction is clearly something with support throughout the party, and the mere fact of the West Virginia Senator publicly validating the possibility of a reconciliation package while acknowledging conversations with the White House, however informal, is a notable development. But with the immediate term dominated the crisis in Ukraine, government funding deadlines, and an historic Supreme Court nomination, no formal movement is likely until late April at the earliest, making the month of May critical for some sort of breakthrough.
[This is an except from the March 4 PRG weekly reconciliation update. Read the rest of my firm’s reconciliation updates here.]