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?
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 manoeuvres 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.”
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.