This week’s Beltway news was dominated by the release of President Biden’s budget request, a perennial buffet of fiscal fantasy that nonetheless provides clues as to which policies the White House might pursue. Recall that last year’s presidential budget provided a first draft of the Build Back Better agenda, then known as the American Jobs Plan and the American Families Plan, respectively, complete with policy explanations and revenue tables. With that in mind, the FY2023 edition might reasonably be expected to reflect the shifting political realities in the interim. But for all its messaging flourishes—and indeed, the administration billed this as its plan to lower costs, reduce the deficit, and curb inflation—the contents are merrily detached from anything that might conceivably become law.
Now, we should note that the President’s budget is fundamentally a political document—a vehicle for the administration to signal its priorities and rally its stakeholders irrespective of the odds of passage. At the same time, there is a certain dissonance between the headlines, which deem it a “peace offering” built around “Manchin priorities,” and the substantive reality of what the administration chose to include. And while there have been significant thematic adjustments since last year’s focus on transformative investment, the coverage has largely elided the White House decision to simply assume passage of the House Build Back Better tax title (minus SALT relief), incorporating its revenue provisions into the baseline in order to prop up rosy fiscal numbers.
The budget does include a “deficit neutral reserve fund” for legislation that “reduces cost, expands productive capacity, and reforms the tax system,” a placeholder for negotiations over a to-be-determined reconciliation package, should one materialize. And the thematic pivot toward moderate, Manchin- and midterm-friendly messaging is unmistakable. But given the opportunity to signal concessions as a means of moving his agenda forward, the President elected to double down, proposing more than $700 billion in additional tax increases, including a newsy non-starter in a “billionaire minimum income tax” (BMIT) that Manchin quickly shot down.
Much like the BBB baseline gimmick, these changes were incorporated in service of politically necessary deficit reduction goals, but it remains striking that they chose to recycle numerous provisions that Senator Kyrsten Sinema (corporate and individual rate hikes,) Manchin (repeal of fossil fuel preferences) and various others (repeal of stepped-up basis) have pointedly and publicly rejected. As the White House seeks to re-engage these members on a reconciliation package, building on the sense of narrative momentum that seemed to be materializing last week, these off-key elements stand to make a tense dynamic even more stilted. If nothing else, it raises questions as to whether the White House has learned the right lessons from a year of frustration and futility.
With Congress racing to wrap up its pending work heading into the Easter recess, we are unlikely to see any meaningful developments on reconciliation until the next work period, which stretches from late April through May. Memorial Day remains a crucial waypoint for tangible signs of a breakthrough. And with the White House and Democratic leaders increasingly spooked by grisly poll numbers, their focus remains on near term measures that can be seen to alleviate energy prices, like tapping the strategic petroleum reserve (SPR), or address ongoing supply chain issues, as with invoking the Defense Production Act (DPA) for critical minerals. The immediate imperative of appearing responsive to consumer—and ultimately, voter—angst compounds the timing challenge facing Democrats as the window for legislative action narrows. The next two months will determine whether they can keep the salvage effort on track.
[This is an except from the April 1 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.]