For the past several weeks it has been unclear if Congress can pass the budget reconciliation bill that, in part, increases taxes on corporations and wealthier taxpayers. That lack of clarity persists.
Below is the current state for where negotiations are with this bill.
Setting the Stage:
Passing the budget reconciliation bill is dependent upon the passage of the infrastructure bill that has already passed the Senate. Since negotiations began on these bills, the passage of one has been contingent upon the approval of the other.
An attempt was made to break the connection between the bills, but it didn’t last long.
On September 27th, House Speaker Nancy Pelosi (D-Calif.) announced that the bills had been de-linked, which meant one could pass Congress without the approval of the other. She made this announcement as the House was preparing to vote on the Senate-approved infrastructure bill. If the House were to approve this bill, it could go the White House and be signed into law.
The Speaker’s announcement about decoupling the bills infuriated certain members within her party. They support the passage of the budget reconciliation bill more than approving the infrastructure bill.
To counter the Speaker’s announcement, these Democrats cautioned that they would vote against the infrastructure bill unless the reconciliation bill had already passed the chamber. This position is held by enough House Democrats to tank the infrastructure bill. So, despite the Speaker’s effort to de-link the bills, they remain connected.
Assuming these lawmakers don't change their position, it is unclear when the House will vote on the infrastructure bill (a vote was expected today but so far it has not occurred).
If the vote on infrastructure is delayed until the reconciliation bill is finalized, that could be a long wait. The Democratic party is at odds with several provisions in the legislation.
State of Play:
Last week, several House committees completed their work on the budget reconciliation bill that could cost up to $3.5 trillion. One of those committees was the Ways and Means Committee, which approved legislation that includes roughly $1.2 trillion in tax cuts and $2.1 trillion in tax increases, which amounts to a net tax increase of nearly $900 billion over the next ten years.
The House Budget Committee then approved the entire package, but shortly thereafter the legislation stalled. The stoppage was due to Democrats' disagreements over several of the legislation's provisions and its overall price.
Neither of these issues have been resolved.
House Ways and Means Chairman Richard Neal (D-Mass.) said that once there is agreement on the bill’s price, provisions that his committee approved could be adjusted to meet that amount. The Chairman also said that some provisions might be cut from the bill. He would not say which measures were potentials for the chopping block.
The Price is Right:
Democrats in both chambers are at odds over this bill, and its price is at the top of the list.
Some House and Senate Democrats have said that the bill’s price tag should not drop below $3.5 trillion. Other members within the party contend the price should be much lower. Democratic leaders have acknowledged that the bill’s price will likely shrink.
In a move that is expected to lower the bill’s overall cost, Senator Joe Manchin (D-W.Va.) on September 30th released an agreement he struck with Senate Majority Leader Chuck Schumer (D-N.Y.). The agreement states that the total cost of the bill should not exceed $1.5 trillion. Both Senators signed this agreement, which is dated July 28, 2021.
Normally, one Senator’s request for a bill would not receive a lot of attention. But the Senate cannot afford to lose one Democratic vote in passing the budget reconciliation bill. Also, the agreement includes Schumer’s signature, which would suggest that he agrees with its contents.
Besides cutting the total price of the bill by more than half, the agreement also includes the following tax proposals:
- Increase the corporate income tax rate to 25%. (The House Ways and Means Committee approved a tiered corporate tax: $0 to $399,999 - 18%, $400,000 to $5 million – 21%, more than $5 million – 26.5%.)
- A corporate domestic minimum tax of 15%, versus 16.5% approved by Ways and Means.
- Increase capital gains tax to 28%, versus 25% approved by Ways and Means.
- Reduce the tax gap. No details were provided. The Ways and Means approved funding for increased IRS enforcement.
Senator Manchin is just one of a handful of congressional Democrats who want to reduce the price of the budget reconciliation bill. But he is the only lawmaker who has produced a document showing that his party's leader apparently agrees with his position.
The Takeaway:
Democratic lawmakers need to agree on the total price for the budget reconciliation bill. Until then, it will be hard to know what tax provisions will be included in the legislation.
One issue that might push lawmakers toward decision-making is the debt ceiling, which is the total amount of debt that the federal government can issue. This ceiling needs to be lifted between mid- and late October. If the budget reconciliation bill is used to lift the debt ceiling, then Democratic lawmakers will have to pass the legislation before the federal government’s borrowing authority is compromised.
If raising the debt ceiling is included in the budget reconciliation bill, the legislation must pass Congress, which means the tax increases would become law. If the debt ceiling is not addressed in the legislation, it is unclear if this bill will pass Congress.
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