Democrats’ $3.5 Trillion Budget Win Exposes Cracks in Party

(Bloomberg) -- President Joe Biden’s economic agenda took a major step forward Wednesday with Senate passage of a $3.5 trillion budget framework, but the bill that opens the way for the biggest expansion of federal social spending immediately exposed division among Democrats.

The outline passed the Senate over unified Republican opposition, but translating it into law will require Biden and Democratic congressional leaders keeping their party’s moderate and progressive wings marching together.

Just hours after Democrats passed the budget blueprint on a party-line 50-49 vote, Senator Joe Manchin of West Virginia said he couldn’t support a social spending bill with a $3.5 trillion price tag. Senator Kyrsten Sinema, an Arizona Democrat, has said the same. One Democratic objection is all it would take to scuttle the package in the Senate.

Manchin said he had “grave concerns” that another multi-trillion dollar spending bill could cause prices to rise, harming middle-income households, echoing the arguments of many Republicans that continued fiscal support from Washington will trigger inflation and undermine the economy. Labor Department data Wednesday showed the consumer price index in July increased 0.5% from June and 5.4% from a year ago, adding fuel to those concerns.

Biden took on concerns about prices in comments at the White House Wednesday celebrating progress in the economic recovery and passage of the budget resolution.

“If your primary concern right now is the cost of living, you should support this plan,” Biden said. “A vote against this plan is vote against lowering the cost of health care, housing, child care, elder care and prescription drugs for American families.”

Neither Manchin nor Sinema has said how big a package they would support. But progressives in the House say $3.5 trillion is the minimum needed for health care, climate and other programs. They are threatening that unless their priorities are met, they will withhold support for the separate infrastructure legislation with $550 billion in new spending passed on a bipartisan basis in the Senate Tuesday.

House Speaker Nancy Pelosi has vowed to wait for the Senate to pass the larger spending package before acting on infrastructure.

In a sign of the intra-party tension in the House, Representative Stephanie Murphy of Florida, a co-chair of the Blue Dog caucus of moderate Democrats, on Wednesday called on Pelosi to bring the public works package to the floor for a vote without waiting for action on the more contentious social spending. “We shouldn’t hold infrastructure hostage to it,” she tweeted Wednesday.

Senate Majority Leader Chuck Schumer projected optimism the differences could be overcome.

“There are some in my caucus who believe it’s too much. There are some who think it’s too little,” Schumer said at a news conference Wednesday. “We’re going to all come together to meet that goal” of passing Biden’s agenda.

Mitch McConnell, the Senate’s Republican leader, accused Democrats of playing “Russian roulette” with the economy, calling the budget plan a “historically reckless taxing and spending spree” that will fan inflation.

Democrats are pitching tax cuts in the plan as the largest in history for the middle class, including an extension of the temporary pandemic child tax credit. Part of the cost would be paid by rolling back the tax cuts for corporations and wealthy households that were former President Donald Trump’s signature legislative achievement. The reductions for households, which are politically popular, make it easier for moderate Democrats who are wary of Biden’s proposed tax hikes to support the proposal.

The Democratic budget plan includes calls for universal pre-K for 3- and 4-year-olds, paid family leave, two years of tuition-free community college, and new dental, vision and hearing benefits for Medicare beneficiaries.

The resolution also calls for a series of measures to combat climate change. Among them are a “polluter fee” on imports for products’ greenhouse gas emissions, plans to electrify the federal vehicle fleet and incentives for electricity suppliers to achieve Biden’s goal of 80% clean power by 2030, up from approximately 40% currently.

The details still must be filled in through actual legislation. Senate committees are supposed to complete the bill as soon as Sept. 15, though negotiating the mammoth package and passing it in both chambers could take much longer as the Democratic Party’s factions wrangle over the size of the plan and how to handle hot-button issues like taxes, climate and immigration.

Even as the Democratic budget outline calls for tax increases on households earning more than $400,000 per year, it instructs committees to cut taxes for those making less.

Among the provisions is an extension of the child tax credit, which gives parents up to $300 per child per month. That tax break is currently scheduled to be scaled back at the end of the year.

The cuts for middle-class families would be offset by large increases on corporations, including raising the corporate tax rate and imposing a minimum tax on offshore business profits. Biden has proposed raising the corporate tax rate from 21% to 28%, though some moderate Democrats, including Manchin, say they don’t support an increase that big.

The resolution also specifically references expanding the state and local tax deduction, a key priority for lawmakers representing high-tax areas, including those in New York and New Jersey. Increasing the $10,000 cap on the SALT deduction is of particular importance in the House, where more than 20 Democrats have said they would sink Biden’s economic agenda unless the tax break, which was limited under Trump, is made more generous.

The House will interrupt its summer recess on Aug. 23 to vote on the budget resolution, Majority Leader Steny Hoyer announced Tuesday, and approval in the Democratic-controlled chamber is expected. House members weren’t scheduled to return to Washington until Sept. 20.

The budget plan and infrastructure package also will run into a potentially disruptive political sideshow some time in the fall. The blueprint doesn’t include an increase or suspension in the statutory debt ceiling, which is needed to avert a U.S. default later this year.

That means action on the debt limit has to follow normal Senate procedure, under which it can be blocked unless 10 Republicans join Democrats in limiting debate. GOP leaders say the party won’t support an increase.

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