Close Close
ThinkAdvisor

Financial Planning > Tax Planning > Tax Reform

Democrats Move to Break Stalemate on Biden Plan by Scaling Back

X
Your article was successfully shared with the contacts you provided.

What You Need to Know

  • House Majority Leader Chuck Schumer is pushing for Democrats to reach an agreement this week.
  • Free community college is likely to be cut from the package and the extended child tax credits pared back.
  • Expansions to Medicare and the SALT deduction are expected to remain in the bill.

Congressional Democrats made significant headway in breaking their stalemate on President Joe Biden’s economic agenda Tuesday by jettisoning or trimming portions of the multitrillion-dollar tax and spending package.

The progress came after Biden met with representatives of both wings of the party at the White House on Tuesday and as Senate Majority Leader Chuck Schumer put pressure on Democrats to sew up a deal this week.

Among the expected targets for cuts is a program that would provide two years of tuition-free community college. The extension of the expanded child tax credit, meanwhile, will likely be one year as opposed to four, according to a personal familiar with the discussion. Lawmakers are also discussing keeping health care expenditures under $250 billion, the person said.

Those changes could slice hundreds of billions of dollars from the overall cost of the plan as Democrats look to scale back a $3.5 trillion framework to roughly $2 trillion to bridge differences in the party. Slim majorities in both the House and Senate mean that nearly every congressional Democrat will have to vote for the plan.

“The pace has picked up,” Schumer said after a closed-door lunch with other Senate Democrats. “The desire to get this done is universal.”

Schumer said congressional leaders are pushing for a “framework” by the end of the week on a package of tax increases and programs to fight climate change and expand federal support for education, child care and health care. That would clear the way to advance that plan as well as the Senate-passed $550 billion public works bill awaiting action in the House.

Nine House Democrats, including Progressive Caucus Chairwoman Pramila Jayapal, met with Biden, Vice President Kamala Harris and Treasury Secretary Janet Yellen for about two hours beginning shortly after 2 p.m. in Washington. Biden, Harris and Yellen later met with eight centrist Democrats, including Senators Jon Tester of Montana and Mark Warner of Virginia.

‘Urgency’

“There was broad agreement that there is urgency in moving forward over the next several days and that the window for finalizing a package is closing,” White House Press Secretary Jen Psaki said in a statement Tuesday night.

The trick will be settling on legislation that can appeal to the broadest swath of the party — including two key moderate holdouts, Senators Joe Manchin and Kyrsten Sinema, and progressives such as Senator Bernie Sanders.

Representative Josh Gottheimer, a New Jersey Democrat, said he is confident the final deal will include an expansion of the state and local tax, or SALT, deduction, a valuable write-off for residents of high-tax areas.

Jayapal emerged from a Tuesday evening meeting with Democrats saying the bill’s final cost would be $1.9 trillion to $2.2 trillion, down from the $3.5 trillion the House had previously endorsed.

An expansion of Medicare benefits, to include dental, vision and hearing, is in the bill, but the details are still being negotiated, Representative Ro Khanna, a California progressive said. Universal pre-kindergarten will also be in the bill, and will not be based on salary, he said.

However, the Clean Electricity Performance Program will likely not make the cut, Khanna said. Lawmakers are looking at alternatives to meet the goal set by Biden for 50% emissions cuts by decades end. A deal would give the president something to highlight when he attends a UN climate summit in Glasgow that begins Oct. 31.

“If we don’t get this done, it’s going to be a huge dent to American credibility on climate change,” Khanna said.

Biden has been talking individually with Manchin and Sinema, who are pressing him to significantly pare down the social-spending legislation. He met separately Tuesday with both senators.

More on this topic

“He just said he’s working very hard with them and he feels like he’s going to try to get us to resolution,” Jayapal said of Biden. “And went through some of the things he knows are important to us in terms of what he’s fighting for in the bill.”

Virginia Senator Tim Kaine said it was “decision time” for Democrats.

“There was a strong feeling from everyone in that room that this is the week to come together,” he said Tuesday as he left the Democratic luncheon.

Negotiations have dragged on for weeks, threatening both pieces of Biden’s economic agenda — the Senate-passed bipartisan infrastructure plan and the climate and social-spending bill.

Democrats are concerned that the longer the talks continue, the more opportunity Republicans and allied interest groups will gain to organize opposition to the legislation. Many Democrats believe both bills are crucial for the party’s prospects in the 2022 midterm elections, let alone the success of Biden’s presidency.

Warner said Monday that he thinks a deal is closer, “but boy, it’s taking a while.”

Infrastructure Bill

With an eye on the Nov. 2 Virginia governor’s election, Warner has advocated for Congress to clear the infrastructure bill for Biden to sign as negotiations continue on the social-spending bill. But House progressives say they won’t support the infrastructure legislation unless a deal is sealed with Manchin and Sinema on the larger bill, which would carry many of their priorities into law.

There are still some key details to be worked out.

Manchin, who represents a coal-producing state and personally earns income from shares of a coal brokerage he founded, opposes a clean electricity program in the legislation. He’s also called for income restrictions and work requirements for the child tax credit, one of Biden’s top priorities.  He said Tuesday he still has $1.5 trillion as his upper limit for the package.

“Everything is pretty fluid,” Manchin said. “We are getting closer and closer on what we can and can’t do. We’ll get there.”

An additional complicating factor is that Sinema, an Arizona Democrat whose support is critical for Democrats to advance the bill, hasn’t publicly outlined her main demands for the legislation. Many House Democrats have complained that they don’t know what she wants or what she’ll support.

Many lawmakers were skeptical that legislation for the larger package could be drawn up and voted on by Oct. 31. Instead, California Representative Ami Bera said,  “it may be possible” to have a deal on the trimmed Biden agenda, and then the House giving final passage next week to the infrastructure bill.

Still, it was clear that Democrats felt a sense of urgency.

“There is I think growing sentiment in the Democratic caucus that negotiations and discussions have gone on now for many many months and that it’s time to come to a resolution,” Sanders said.

– With assistance from Justin Sink, Megan Howard, Jenny Leonard, Nancy Cook and Laura Litvan.

Pictured: Senate Majority Leader Chuck Schumer, D-N.Y. (Photo: Bloomberg)

Copyright 2021 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.