Democrats Wrestle With Where to Cut Wish List to Satisfy Joe Manchin
(Bloomberg) -- President Joe Biden’s economic agenda now hinges on whether Democrats can make enough changes to satisfy moderate Joe Manchin, a pivotal vote in the Senate whose objections Sunday ground the roughly $2 trillion plan to a halt.
The administration and its allies in Congress will look for programs to cut or significantly revise in the tax and social-spending plan, known as “Build Back Better,” that carries the bulk of Biden’s priorities on climate change, health-care costs and child-rearing expenses.
The West Virginia Democrat outlined demands on Monday that could form the basis for a new plan. He wants to start by reducing its cost to $1.75 trillion and extend its benefit programs to 10 years. He would rather cut entire programs from the bill than shrink benefits across the board to make them fit.
While such changes to the bill may bring Manchin back aboard, wholesale cuts risk driving away other Democratic votes. With Republicans uniformly opposed to the plan, Biden needs support from all 50 senators who caucus with Democrats to win passage under the budget maneuver known as reconciliation.
Here’s a look at what may stay in the bill, and what’s at risk of slipping out.
- Universal pre-k: The House-passed bill would expand free education to 3- and 4-year-olds through payments to states, a provision Manchin has praised.
- Obamacare subsidies: The House bill extends for two years Affordable Care Act tax credits set to expire for those making more than the poverty line. Doing so is in line with moderates’ efforts to bolster Democrats’ signature policy achievement in recent decades.
- Prescription drug cuts: Manchin has repeatedly pushed for cuts to drug prices and he doesn’t think the bill goes far enough. What’s more, drug price provisions don’t push up the cost of the bill.
- Climate change tax credits: The expansion of tax credits for renewable power, tax credits for hydrogen and nuclear power and advanced and clean energy manufacturing supports likely can get Manchin support, even if at lower levels.
- Corporate minimum tax and international tax changes: Minimum taxes on domestic financial-statement profits and offshore business earnings generate hundreds of billions of dollars in new revenue and have broad support among Democrats. Previous versions of the legislation would have prevented U.S. companies from moving assets and jobs offshore, which Democrats, including Manchin, say is important.
- Stock buyback tax: A 1% excise tax on companies when they buy back their own stock solves two problems for Democrats. The proposal raises $124.2 billion to offset new social spending and proponents say it would help equalize the tax treatment between corporate dividends and share repurchases.
- Net investment income tax increase: The House bill expands a 3.8% tax funding Medicare to cover the small business, or pass-through income, of high earners. That income had previously been exempted from the tax.
- IRS enforcement: Democrats want to give the IRS $80 billion to expand audits, improve taxpayer service and upgrade their computer systems to boost tax compliance. Manchin has said he supports ensuring people pay the taxes they already owe before imposing new taxes.
- Smaller expanded Child Tax Credit: Democrats planned to use the bill to renew $3,600 credits for children under 6 and $3,000 benefits for older children, which works out to $300 a month for young children and $250 for those six and over. Given Manchin’s opposition to the costs, Democrats may need to reduce the credits and the income thresholds for phasing out the benefit. Manchin suggested $200,000 income cap in a radio interview.
- Earned Income Tax Credit: The bill would expand the availability of the earned income tax credit, a low-income subsidy, to more childless workers, helping some of the poorest Americans. Work requirements, which Manchin likes, are already built into this credit.
- Millionaires surtax: A millionaire surtax would place a 5% levy on individual incomes in excess of $10 million and an additional 3% tax on those over $25 million. Manchin said he supports higher taxes on wealthy Americans, but also said he doesn’t want tax hikes to be punitive.
- SALT: An expansion of the state and local tax, or SALT, deduction is a priority for many in the House and any bill likely cannot pass if that write-off isn’t addressed. Senate Democrats are working on a compromise to limit the deduction to those earning under a certain income level and Manchin has expressed ambivalence about what they ultimately decide. The $80,000 cap in the House bill for the deduction could come much closer to the $10,000 level set in current law.
- Housing: The House bill has more than $100 billion for public housing, affordable housing, home-owner assistance and related services but Democrats rarely highlight these provisions. The levels could be greatly reduced to shoehorn them into a smaller bill.
- Home healthcare expansion: The House bill has a little-touted provision that matches funds to the states for home health care and extends coverage of administrative costs.
- Electric Vehicles Tax Credit: Democrats will likely need to overhaul their plans for electric vehicle tax credits -- or scrap them all together. The current bill provides a $7,500 consumer tax credit to be made refundable and expanded by $4,500 for cars assembled domestically in union plants with an extra $500 for batteries made in the U.S. Manchin, whose state is home to a non-union Toyota factory, said he is opposed to the union portion of the tax credit. He also wants income limits on the credit.
- Paid leave: Manchin has never supported government-subsidized paid family leave as laid out in the House bill but has said a bipartisan deal on a different version is possible.
- Medicaid expansion: The House bill expands Medicaid eligibility to residents in states that chose not to expand coverage under Obamacare. Manchin says it isn’t fair to states that are spending their own money to expand Medicaid. It is a must-have for Senator Raphael Warnock, who will fight for its inclusion.
- Child Tax Credit refundability: Manchin says he also wants to impose some work requirements on the child tax credit so that parents with little or no income can’t claim the benefit. Democrats had written the tax credit so the lowest-income households with children could still get the money. Manchin has said he doesn’t want parents without any tax liability to get the credit in the form of a tax refund.
- Methane fee: Manchin has been opposed to new fees on methane that would hurt the fossil fuel industry.
- Bike tax credit: Democrats may have to slash some provisions with limited constituencies, including a tax rebate for electric bikes. The House envisioned that the maximum $900 benefit is only available to individuals who earn up to $75,000 or couples who make $150,000.
- Journalist tax credit: An employment tax credit for local news outlets could be eliminated. The preference would give local news organizations a $25,000 benefit to offset a journalist’s payroll taxes in the first year of employment and $15,000 for the subsequent four years. Republicans have said Democrats are seeking to buy favorable coverage.
- Immigration: The Senate parliamentarian has already repeatedly ruled against a pathway to citizenship or relief from deportation for undocumented immigrants. Manchin has said he would not support overruling the Senate rules official.
- Vaping tax: Senate Democrats already removed this nicotine fee from the House-passed bill even before Manchin came out formally against the whole package.
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