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The Senate Budget Deal Kicks Off a Flurry of Negotiation

This is only the beginning of a long, long process.

 

President Biden joined Senate Majority Leader Chuck Schumer (D-NY) and
fellow Democrats at the Capitol on Wednesday to discuss the latest
progress on his infrastructure agenda. (Andrew Harnik/AP Photo)

 

****

**** It's the newsletter writer's worst nightmare: You have a story
all set up, prepped to post in the morning, and news breaks right after
press time. You can rip the whole thing up or follow up later. I chose
the latter.

The development in question was the announcement of a $3.5 trillion
budget resolution agreement

by Senate Democrats late Tuesday night. The Senate was always going to
go first
,
and Speaker Pelosi's immediate support
confirms
that this is the blueprint for the Build Back Better agenda. It's
really a State of the Union address in one bill, encompassing a set of
policies that Democrats have sought to pass for decades.

If this or a close cousin of it passed, I think you'd have to agree
with Bernie Sanders that it's the most progressive advance in America
since the New Deal. He obviously compromised to a place he was quite
comfortable with. This sentence in the initial WaPo write-up
that Sanders had to bow to "political
realities inside a party whose centrist wing has sought to temper
federal spending" because his $6 trillion high bid came down to $3.5
trillion, easily the biggest bill in American history by almost double,
reflects how big a sea change there has been on fiscal policy among
Democrats. Progressives who sought more spending aren't going to be a
problem
here.

Combined with Portman-Sinema (they're the two leads on the bipartisan
infrastructure bill, and I'm tired of saying "bipartisan
infrastructure bill") and the American Rescue Plan in March, that's $6
trillion in spending right there. These are almost precisely the
toplines Biden called for in all of these bills, and it would be a
monumental achievement to get them. It would change America for the
better.

Of course, we are months from that point even under the best-case
scenario. In baseball terms, this isn't even the first inning, it's
the exchange of lineup cards before the game.

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Senate Democratic aides put out a sketch of what made the package
yesterday, and the emphasis is on the word "sketch." The expanded tax
credits for families (Child Tax Credit) and the poor (Earned Income Tax
Credit) will extend for an indeterminate period; it looks like a shorter
extension than the initial Biden bill, which went to 2025. There are a
number of climate provisions, led by the clean electricity standard
(yes, the Civilian Climate Corps

also made it), with fees on polluters for imports and the release of
methane. Universal pre-K, along with "high-quality and affordable child
care," paid family and medical leave, and an expansion of home and
community-based services, places the entire family care
agenda in the bill. There's funding
for community colleges, though it's unclear whether that would make
them free, and expanded Pell grants. An affordable-housing plank could
be the same as the initial Biden plan, which was $200 billion. Dental,
vision, and hearing are added to Medicare. The expanded health insurance
subsidies from the American Rescue Plan, which were to expire after
2022, are extended here, and the Medicaid "coverage gap" in nonexpansion
states is closed (does that mean with a public option?).

Then there are the less fleshed-out planks, like "small business
support" and "American manufacturing." Two surprising bits: Sanders says
the PRO Act, which would make it easier to organize workers, is in the
bill, and there's definitely an immigration component as well (the
fact sheet just says "LRPs for immigrants," which stands for legal
permanent residents, as well as "border management"). Even the revenue
offsets include a surprise: Though Biden never added it, some $600
billion in savings

from allowing Medicare negotiation for prescription drugs is in the
bill. This creates a virtuous circle, because if moderates are concerned
about taxes, then the prescription drug component, which will also lower
costs for patients, would need to be expanded. (Dynamic scoring is built
in as well, "paying for" this investment by saying it will promote
long-term economic growth.)

So that's a lot. Nearly all of it is popular
,
and Democrats have a lot of self-created urgency to show tangible
results to the public. Usually I don't much care for these giant
bills, because they are excellent ways to cover up some really sleazy
legislation and pack it in with things that must pass. Here the opposite
dynamic may hold: With a lot of good stuff in there, opponents can only
target a couple, letting everything else go through.

The problem would be if that one thing that gets targeted is taxes.
Democrats have already signaled they're going wobbly there, and
because of this deficit hawk preoccupation

that the entire $3.5 trillion must be offset by revenue, every dollar
reduction in tax increases must be paired with a dollar reduction in
spending. We got a preview of this a couple of weeks ago with that story
about how Biden's team thinks they can get the same impact with less
spending
.
That would be a mistake.

Biden's vow

not to tax anyone making under $400,000 a year gives policymakers less
flexibility to come up with something. (Not to mention the whole state
and local tax deduction kerfuffle
,
which costs a lot and is sure to come back.) Negotiators seem to work to
get a lot done through more IRS enforcement to shrink the tax gap, but
there's the question of whether the Congressional Budget Office will
score that as revenue.

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So far, other areas seem to be getting the attention. Emperor Joe
Manchin is more concerned about the climate provisions
than the
topline numbers. While there are many vulnerable Democrats who support
the prescription drug price reforms
,
just a month or so ago ten House Democrats said they would oppose

moving forward on that. There are three Senate Democrats who haven't
endorsed the PRO Act.

Then there's the looming presence of the Senate parliamentarian. As
this bill will work through the budget reconciliation process,
everything must have a budgetary impact: The immigration and PRO Act
pieces in particular will be a struggle (apparently only parts of each
of those initiatives can make the bill). You'll see a lot of kludges
here, like a clean electricity standard that accomplishes its goals (80
percent of power generation from renewables by 2035) through fines,
looking suspiciously like a carbon tax though it's not the same.
Democrats can overrule the parliamentarian at any time, but they shrank
from that fight on the minimum wage in the American Rescue Plan.

There's also the fact that Republicans could use this agreement as an
excuse to pull out of Portman-Sinema; there's already been talk of
that
.
At that point, you'd have to fold that bill into the reconciliation
package, and that could reopen that whole agreement, which was changed
to court Republican support. Would Democrats put privatization in a
Democrat-only bill?

Finally, this is a Senate Democratic agreement-and it needs work on
that front-but the biggest problems are likely to come from the House,
where Pelosi has just three votes to spare. Several members have spoken
loudly about the deficit

in recent weeks. This quote in Punchbowl News from a House moderate this
morning was not too cheery: "Given red-hot inflationary pressures, and
our strong desire to keep the House blue, a gargantuan $3.5 trillion
package, with massive new taxes, is a non-starter for many of us, and I
predict it would go down in a blaze of glory."

Some progress has been made, but there are a lot of question marks, and
the blaze-of-glory scenario is definitely possible. Put it this way: I
might need a new logo for Infrastructure Fall and Winter.

 

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