Democratic Split on Taxes, Spending Imperils Deal Deadline

(Bloomberg) -- Congressional Democrats are at odds over both the tax and spending sides of a bill to enact the bulk of President Joe Biden’s economic agenda, putting in question the goal of party leaders to strike a deal by the end of the week.

The chances for agreement -- which seemed in reach late Tuesday -- have receded as Democrats intensified a search for alternatives to the corporate and individual tax hikes they’d worked on for months, in the face of opposition from Senator Kyrsten Sinema of Arizona. Democrats also are reworking the bill’s climate provisions, after Senator Joe Manchin of West Virginia said he can’t support a clean power program favored by Biden, and they are still struggling to come to terms on a host of other provisions.

The eleventh-hour moves to appease the two senators -- whose crucial votes are seen as the hardest to win -- demonstrate the massive changes that lawmakers must make to the tax and spending plans the White House unveiled in the spring.

“This is not going to happen anytime soon,” Manchin told reporters Thursday. “Until you see the text and the fine print, it’s pretty hard to make final decisions.”

Should Democrats nix a proposed corporate tax hike to 26.5% from 21%, they would set aside a promise to make the largest businesses shoulder more of the tax burden. It also would leave Democrats with a more than $540 billion hole in the roughly $2 trillion total they need to raise to offset the cost of spending plans that include climate, health care and early-childhood programs.

Setbacks Seen

Besides the wide gulf on revenue, other items that had seemed close to being settled -- like the elimination of free community college and the scaling back of the child tax credit expansion to one year -- were met with resistance from some Democrats Wednesday. 

“The last couple of days, we’ve come to narrowing what the possibilities are as we see what we need to cover,” House Speaker Nancy Pelosi, who also is facing divisions in her chamber, said Thursday. “But we’ll see what survives, what prevails.”

With slim majorities in both chambers, Democrats need near-unanimous support to squeak the measure through Congress in face of concerted Republican opposition. 

Even the skimpiest outline of a deal would need some detail on how Democrats plan to pay for it, particularly given Biden’s pledge that the package would not add to the deficit.

“There is an expansive menu of options for how to finance the president’s plan to ensure our economy delivers for hardworking families, and none of them are off the table,” White House spokesman Andrew Bates said in a statement late Wednesday.

Biden’s Push

Biden has marshaled a renewed push, both with lawmakers and with the public, to get his agenda enacted. On Tuesday, he met with key lawmakers at the White House, including Manchin and Sinema, and later met separately with one group of progressive lawmakers and a group of moderates.

On Wednesday, Biden headed to his hometown of Scranton, delivering a speech that relied heavily on his personal story in his call to boost the middle class. 

“My Build Back Better plan is designed to get us moving again,” he said.

He invoked his victory in the 2020 election as a mandate for the pledges he made on the campaign trail. 

Town Hall

“Guess what? 81 million people voted for me,” he said. “Their voices deserve to be heard, not to be denied or worse, be ignored.” 

On Thursday, Biden will head to Baltimore to hold a town hall hosted by CNN, where he’ll continue his campaign for a deal.

Democrats face a series of hard decisions in the coming days as they look to trim their plans down to roughly $2 trillion from the previous outline of more than $3.5 trillion. 

Both Senate Finance Chair Ron Wyden and Budget Chair Bernie Sanders insisted the final legislation will include a provision allowing Medicare health insurance program for the elderly to negotiate prices for prescription drugs, something the pharmaceutical industry has opposed for years.

“We’re going to go to the mat on it,” Wyden told reporters Thursday. “We understand that the American people expect that Congress and Democrats specifically will deliver.”

He said that some provisions of the price negotiation could be phased in to help assuage concerns of lawmakers about impeding development of new drugs.

But Representative Scott Peters, a chief opponent in the House of the drug price provision, said this week that the White House realizes the original House proposal is dead and is seeking alternatives. 

Neal’s Frustration

Ways and Means Chairman Richard Neal said he is negotiating with the White House to preserve his panel’s endorsement of extending for four years the $250-$300 per month expansion of the child tax credit for parents.

“We’re gonna continue to fight for the House position,” Neal told reporters. “We didn’t have a new tax plan every half hour, we laid out a plan that was fully paid for, and we set our priorities.”

“We expect negotiations to remain very hectic over the next 10 days,” Evercore ISI analysts Tobin Marcus and Peter Williams wrote in a note to clients Thursday. “We see a 50-50 chance that Democrats can reach a high-level deal on a reconciliation bill in the $1.8 – $1.9 trillion range by the end of next week.”

Wealth Tax

Without a modest corporate tax increase -- which has broad support among nearly all Democrats, including Manchin -- lawmakers will need to turn to other more untested ideas that are still being fleshed out.

Among the alternatives is a billionaire’s wealth tax, an annual levy on investment appreciation for some of the richest Americans. The idea, being developed by Wyden, has been favored by progressives for years, but is technically difficult to design and implement. Democrats are also considering a tax on corporate stock buybacks and a minimum tax on companies with high profit margins but little taxable income.

The relative newness of these ideas likely means that Democrats will need time to consider the economic and political impacts of the taxes, which could lead to more Democrats beyond Manchin or Sinema balking at the proposals.

“Everyone is going to have to compromise if we are going to find that legislative sweet spot we can all get behind,” Senate Majority Leader Chuck Schumer said on the Senate floor Wednesday. Senators will keep talking “all week long until we get the job done,” he said.

©2021 Bloomberg L.P.