After negotiating for months with the White House and congressional Democratic leaders, Sen. Joe Manchin (D-WV) on Sunday announced he would not vote for the Build Back Better Act (BBBA)—the $2.4 trillion reconciliation package containing President Biden’s top legislative priorities. This alert recaps recent developments around the package and provides key takeaways.
What Happened This Weekend?
Manchin Statements
During an interview over the weekend, Manchin said publicly what he has been telling lawmakers for weeks that he has serious concerns with the BBBA. However, he took an additional step on Sunday, saying that he would vote against the current version of the bill.
Manchin justified his position by saying he has “had [his] reservations from the beginning about the package and repeatedly referenced the effects the bill would have on the national debt and inflation. During the interview, for instance, he said, “inflation is real. It’s not going away anytime soon.”
He also addressed budget maneuvers employed by Democrats in their attempts to reduce the overall cost of the package. During the interview, Manchin said that “the thing that never changed […] was basically the same amount of things that they’re trying to accomplish by just changing, if you will, the amount of time that we can depend on it.” He later referred to the altering of program timelines to ostensibly reduce the overall price as “not being genuine.”
After the interview, Manchin issued a
press release seeking to further clarify his position. In the statement, Manchin noted that the package would “dramatically reshape our society in a way that leaves our country even more vulnerable to the threats we face.”
Democrats Respond
In response, White House Press Secretary Jen Psaki issued a
statement in which she claimed Manchin’s comments contradicted his discussions with the president and White House staff in recent weeks. The statement sought to refute many of the reasons Manchin used for opposing the package, such as his concerns the bill would contribute to inflation and the national debt. Finally, Psaki accused Manchin of reversing his position on the package and urged him to “honor his prior commitments and be true to his word.”
Congressional Democrats took a slightly different approach.
On Sunday, Speaker Nancy Pelosi (D-CA) issued a
Dear Colleague letter in which she outlined the potential benefits of enacting the BBBA. She then said it was “disappointing” Congress was unable to enact into law the BBBA but remained hopeful an agreement could be reached next year.
Senate Majority Leader Chuck Schumer (D-NY) issued a stronger statement, with a similar message. In a
Dear Colleague letter on Monday, he wrote, “we are going to vote on a revised version of the House-passed Build Back Better Act—and we will keep voting on it until we get something done.”
Brownstein Tax Policy Team Takeaways
1. Manchin has spoken, but are Democrats really listening?
Manchin has been consistent for months now with respect to his concerns with the BBBA. He has repeatedly warned about the effects of higher spending on the national debt and inflation, which he does not see as fleeting. He has called on Democrats to pass legislation that is fully paid for rather than using budget gimmicks to pass a bill that will ultimately add trillions to the national debt. However, while Pelosi and Schumer’s statements indicate they understand that the only path forward is a scaled-back version of the bill, it is unclear if the White House and progressives have received the message. For weeks, progressives believed they would eventually secure Manchin’s support for the bill, despite mounting evidence to the contrary. Now, despite Manchin’s forceful statement, the White House continues to refute Manchin’s arguments, calling on him to vote for the bill. Similarly, progressives have shown no indication that they are willing to scale back their agenda, instead exploring workarounds that include the president using executive actions to enact pieces of the agenda that have been rejected by Manchin.
2. There are many possible paths to a compromise bill.
While Manchin may still be open to voting for some scaled-down version of the BBBA, his recent comments indicate Democrats will need to rework the package to align more closely with his priorities. To better understand where Manchin stands on key policies, consider the
memo signed by him and Schumer in July 2021. That agreement outlined key spending and offset priorities for Manchin, including: (1) spending on families and health care, targeted to ensure that it is formulaic and needs-based; (2) prevent the repeal of fossil tax credits if incentives for solar and wind energy are included; (3) have the vehicle and fuel tax credits apply to non-electric vehicles; and (4) various offsets including a 15% corporate domestic minimum tax, 39.6% ordinary income rate, elimination of dynamic scoring, and an increase in the capital gains rate to 28%.
Manchin’s priorities have evolved since this initial agreement with Schumer. The White House claimed that when Manchin met with the president last week, he submitted a written outline for a Build Back Better bill that was the same size and scope as the president’s framework, and covered many of the same priorities.
This framework has not yet been made public, and it unclear what it contains. However, Manchin did provide the following details on Monday during an interview about where he thinks there might be agreement on a final package:
- A maximum price tag of $1.75 trillion;
- Rolling back some sections of the Tax Cuts and Jobs Act (TCJA, P.L.115-97) so the tax code is more equitable; and
- Fixing drug pricing.
Manchin made two additional requests on Monday that might dictate the future path of the BBBA: (1) to include “social reforms to the point that that has responsibility and accountability”; and (2) to have the package considered by Senate committees—a process currently being bypassed by Senate Democrats. Whether or not these will be accepted by Democratic leaders remains to be seen.
Pathway 1—Narrow the focus of the bill and make all programs permanent. With this as a guide, it is possible to anticipate what provisions may be the focal point of discussion. Additionally, a recent Congressional Budget Office (CBO) score that estimates the 10-year cost of these provisions also serves as a reference point.
For example, Democrats could do child care and preschool, health insurance subsidies and certain climate initiatives, forgoing the child tax credit. Without changes, the child tax credit costs $1.6 trillion over a decade.
To meet Sen. Manchin’s demand that the package be offset, revenue raisers from the House bill and Senate Finance Committee text would likely be included in the scaled-back package. The international provisions would be top priority both in terms of the revenues raised ($279 billion) and to meet the Biden administration’s commitment to join the OECD global minimum-tax agreement. The international provisions currently include modifications to the Global Intangible Low-Taxed Income (GILTI) and Base Erosion Anti-Abuse Tax (BEAT) rules. Depending on the size of the package, other provisions could continue to be part of the offsets, including the section 163(n) interest limitation and minimum-tax proposals, as well as the high-income individual surcharge and mega-IRA limitations.
Of course, with limited trust between the various factions in the Democratic party, it is unclear if progressives will be willing to scale back their priorities so drastically. For any chance of success, the White House will have to lead this effort to quickly unify the party.
|
Policy
(House Section)
|
Cost of House Legislation
(in billions)
|
Updated CBO Score
(in billions)
|
Cost Difference
(in billions)
|
|
Child Tax Credit
(Sec. 137102)
|
$185
|
$1,597
|
$1,412
|
|
Child Care and Preschool
(Secs. 23001 and 23002)
|
$381
|
$752
|
$371
|
|
Health Insurance Subsidies
(Secs. 137301 and 137302)
|
$72
|
$220
|
$148
|
|
Health Insurance Subsidies for Certain Low-Income Populations
(Secs. 137304 and 30601)
|
$57
|
$180
|
$123
|
|
Home- and Community-based Care
(Sec. 30712)
|
$146
|
$209
|
$63
|
|
Health Insurance Subsidies for Recipients of Unemployment Compensation
(Secs. 137305 and 30605)
|
$2
|
$28
|
$26
|
|
Total
|
$843
|
$2,986
|
$2,143
|
For more information, the Brownstein Tax Policy has summarized and analyzed the tax provisions in the House-passed version and the changes made in the Senate counterproposal.
Pathway 2—Break up and move the bill in a piecemeal fashion to test support from moderate Democrats and Republicans. Democratic leaders could decide to break the BBBA into pieces and pass separate bills in the House that are fully paid for. Possible sections could include: (1) green-energy tax and spending; (2) health care reform (e.g., ACA, Medicare expansion, drug pricing); (3) family and work-related tax credits (EITC, child tax credit, paid leave, child care/pre-k); (4) spending programs from a variety of House and Senate committees; and (5) whatever else is a high priority for Democrats.
The bills that pass in the House would be brought up in the Senate under regular order with a cloture vote on the motion to proceed as a test vote to see whether Manchin and Sen. Kyrsten Sinema (D-AZ), and potentially senators like Susan Collins and Lisa Murkowski, vote to proceed. That could be an indicator of which portions of the BBB are supported by all 50 Democrats or by a coalition of Democrats and one or two Republicans. Those with sufficient support could be folded into the new, smaller BBB reconciliation bill and used as the Schumer substitute under the expedited procedure.
In this context, revenue raisers from the House bill and Senate Finance Committee text could be arranged to offset the separate pieces. For example, international provisions could offset green energy; high-income and wealthy individual provisions could offset the family and work-related tax credits; and health-related raisers could offset the health care provisions.
This would be a much slower and more painful process, likely dragging well into the 2022 primary season. While the House could pass multiple pieces of the bill before November 2022, there would be pressure to move quickly to ensure that 50 senators are comfortable with the package. The Senate would have to spend at least three days with each title to get to a test vote.
3. Some provisions might be left to a bipartisan extenders or omnibus appropriations package.
Some provisions in the BBBA share bipartisan support. Democratic leaders could sit down with Republican leaders and put together an extender tax bill and attach it to the omnibus appropriations bill, currently scheduled to be passed by mid-February. This is the way energy-tax legislation has often been handled in previous years.
In terms of revenue offsets, priorities will differ. The White House will be under pressure to include the changes to the international provisions to align the United States with the recently negotiated OECD global minimum tax agreement. Many congressional Democrats will want to include the other corporate and individual tax increases in the BBBA to ensure that big corporations and high-income individuals pay their “fair share” of income taxes. In contrast, while Republicans will likely insist that new policy or modifications to existing policy must be paid for in a bipartisan package, they will resist the tax increases included in the House bill and Senate Finance Committee text. New mutually acceptable bipartisan revenue raisers will be difficult to find.
Democrats are unlikely to want to pursue this path, unless it is clear that action through a budget reconciliation bill is not possible. Moreover, such negotiations would expand beyond energy, with Republicans bringing in expiring items such as interest expense deduction, amortization of research expenses, and potentially bonus depreciation. Democrats, in turn, would likely seek an extension of the child tax credit and other tax credits that benefit low-income individuals or families. Additionally, Republicans will have no interest in modifying Tax Cuts and Jobs Act provisions to support the White House’s negotiations with other countries participating in the OECD efforts, and disagreements over the international provisions alone could be enough to threaten any bipartisan discussions.
4. The omicron variant will likely play a role, though the extent is unknown.
Manchin discussed the need to address emerging COVID-19 concerns stemming from the omicron variant. In his comments over the weekend, he said, “the thing we should all be directing our attention towards is the variant.”
This suggests the BBBA, which currently contains a range of social policy issues, could be more narrowly targeted toward COVID-19 response and include provisions similar to those in the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L.116-136) or the American Rescue Plan Act (ARPA, P.L.117-2). Should lawmakers need to rework the BBBA so that it contains, for example, financial assistance for restaurants, schools and the travel industry, this could slow down progress on the bill. Alternatively, the bill could be reshaped into a hybrid COVID-19 relief package and social spending bill.
5. Upcoming deadlines and the looming midterms could be used as justification for inaction.
Congress operates best when faced with deadlines—real or arbitrary. Some upcoming deadlines that may be targeted as dates by which to pass the BBBA could be the State of the Union, which has yet to be scheduled, the expiration of the continuing resolution (which currently funds the government) on Feb. 18, or the upcoming elections, such as early state primary elections for the 2022 midterms beginning on March 1 in Texas.
Given that Democrats have spent almost a year focused on the BBBA, they will be motivated to pass even a very narrow bill prior to the midterms. Both Pelosi and Schumer have shown a willingness to negotiate downward to secure the votes necessary for a “win.”
However, should a final deal continue eluding Democrats, there may come a point when they need to justify proclaiming the package “dead.” The last call for this deadline might be the November midterm elections, but that target would likely be set to an earlier date to give candidates more time on the campaign trail. At the same time, however, because the Biden administration will remain in office after the midterm elections, Democrats could be emboldened to enact the BBBA during the lame-duck session if they face a looming Republican majority in the House or Senate.
Next Steps
With the House having already approved the BBBA, it must now wait for the Senate to act. Senate Democrats will hold a “Special Caucus” this evening to discuss next steps on the package.
After that, most lawmakers are expected to be out for the remainder of the year until the Senate reconvenes on Jan. 3, 2022, and the House returning on Jan. 10. Nevertheless, Manchin, Schumer and the White House will likely remain in negotiations, preparing for potential action early next year.
Brownstein will be monitoring for any developments on the BBBA throughout the holidays. Please contact a member of the team for any questions or additional insights.