Democrats Race to Figure Out How to Pay for Social and Climate Programs

Source: By Emily Cochrane, New York Times • Posted: Wednesday, October 27, 2021

President Biden leaves for Europe on Thursday, but lingering disputes over how to finance the plan may prevent Democrats from uniting around a framework.

White House officials and party leaders have already agreed to significantly whittle down an initial $3.5 trillion budget blueprint Democrats muscled through this year, and the package is now expected to be roughly half its original size.
Al Drago for The New York Times

Democratic leaders and White House officials were racing on Wednesday to resolve a number of key disagreements on their expansive social safety net and climate bill before President Biden departs on Thursday for Europe, even as some lawmakers signaled they may not be able to agree on a framework by the end of the day.

Speaker Nancy Pelosi released a letter to House Democrats saying that talks had moved the party “closer to passing the historic, transformative Build Back Better Act,” as the measure is known. Ms. Pelosi said she had asked the House Rules Committee to convene on Thursday to hear lawmakers present in legislative form what they had reached agreement on, hoping to show tangible progress toward a final agreement — or at least a framework.

But while broad agreement has been reached on extending the child tax credit, granting universal access to prekindergarten and expanding financial assistance for child care, home health care, worker training and housing, a number of provisions remain in flux. Those include expanding health care access in the dozen states that refused to expand Medicaid under the Affordable Care Act and the shape of a paid family and medical leave program.

As a result, a handshake deal on the social policy and climate change measure still seemed unlikely on Wednesday.

“I don’t think so,” Senator Bernie Sanders of Vermont, the chairman of the Budget Committee, said when asked if a deal could be struck on Wednesday, noting lingering disputes over how to pay for the plan. “I’m not quite clear. In terms of the revenue package, every sensible revenue option seems to be destroyed.”

Mr. Sanders met with Mr. Biden at the White House on Wednesday afternoon, according to an aide. Earlier in the day, White House officials met with Senators Kyrsten Sinema of Arizona and Joe Manchin III of West Virginia on Capitol Hill. That meeting, a day after the two Democratic holdouts met privately with Mr. Biden at the White House, lasted more than an hour.

Before the meeting on Wednesday, Mr. Manchin told reporters that “we owe it to the president to move forward,” but he signaled that it would take time before the package would be ready for a vote. He also denounced a proposed plan to tax billionaires as a way of paying for the bill.

“I don’t like the connotation that we’re targeting different people,” he said.

White House officials and party leaders have already agreed to significantly whittle down the initial $3.5 trillion budget blueprint Democrats muscled through this year, and the package is now expected to total roughly half its original size.

Mr. Biden, who is set to leave Thursday for a trip to Rome for the Group of 20 summit and then a United Nations climate conference in Glasgow, hopes to use the plan as evidence of an American commitment to combating climate change as he pushes for a stronger global response. Top Democrats hope that a compromise on the plan could also help pave the way for a House vote on the $1 trillion bipartisan infrastructure package that has already cleared the Senate.

Liberals in the House have repeatedly refused to support that package until after a vote on the far more expansive plan. Without passage of the infrastructure bill by Sunday, lawmakers will have to take up a stopgap bill to avoid the expiration of transportation programs included in the measure.

Representative Steny H. Hoyer of Maryland, the majority leader, told reporters that a vote on the infrastructure bill would not take place on Wednesday, but he did not rule out bringing it up for a vote later in the week.

Representative Pramila Jayapal of Washington, a leading progressive, said on Wednesday that liberals in the House must see the legislative text of the social policy, climate and tax increase bill before they vote for a separate, $1 trillion bipartisan infrastructure bill, saying the two should move in tandem.

Ms. Jayapal’s demand posed a challenge to President Biden and Democratic leaders, who are still pressing for a compromise on the domestic policy package this week, and are far from the point of finalizing the language of a bill that is evolving every hour. But it was also something of a retreat for progressives, who had previously insisted that the Senate pass the legislation before they would support the infrastructure measure.

Instead, Ms. Jayapal said they could vote on both measures in the House on the same day, but would essentially “take the president’s word that all 50 senators will pass that same bill.”

“After talking to the president, I believe that if all the senators are agreeing to not change the bill from what we pass in the House, that we should take the president’s word that he’s got that commitment, and so we’re willing to do that,” Ms. Jayapal, the chairwoman of the Congressional Progressive Caucus, said in an interview.

Because of united Republican opposition to the social safety net and climate plan, Democrats must keep all 50 of their senators and all but a few of their members in the House behind the bill for it to pass.

Liberals have been concerned that two key centrists, Senators Joe Manchin III of West Virginia and Kyrsten Sinema of Arizona, would reject the domestic policy package once the bipartisan infrastructure bill passed. (Both Mr. Manchin and Ms. Sinema have been engaged in nonstop talks for weeks over the details of the plan.)

Their stance complicates the task facing Mr. Biden and top Democrats, who had hoped to hold votes on both pieces of the president’s agenda this week before he leaves for Europe and ahead of two key governor elections on Nov. 2 in New Jersey and Virginia.

But the openness to voting on both bills on the same day could speed up the timeline once a compromise is reached.

“I just don’t want to see us make the mistake of not having the legislative text,” Ms. Jayapal said. “Let’s do them both together. Let’s get it right. Let’s make sure there are no misunderstandings, because there have been too many misunderstandings so far.”

Senate Democrats’ plan to extract hundreds of billions of dollars from the wealth of billionaires hit a major snag on Wednesday when Senator Joe Manchin III, Democrat of West Virginia, denounced it as divisive.

The billionaires tax, officially unveiled early Wednesday morning, may have died before the ink was dry on its 107-page text. Mr. Manchin, speaking with reporters, said, “I don’t like the connotation that we’re targeting different people.” People, he added, that “contributed to society” and “create a lot of jobs and invest a lot of money and give a lot to philanthropic pursuits.”

“It’s time that we all pull together and row together,” he said.

The proposed tax would almost certainly face court challenges, but given the blockade on more conventional tax rate increases imposed by Senator Kyrsten Sinema of Arizona, Democrats have few other options for financing their domestic agenda. Finance Committee aides expressed surprise at Mr. Manchin’s position, insisting that he had expressed at least mild support to the committee’s chairman, Senator Ron Wyden, Democrat of Oregon.

If the proposal can be enacted over Mr. Manchin’s concerns, billionaires would be taxed on the unrealized gains in the value of their liquid assets, such as stocks, bonds and cash, which can grow for years as vast capital stores that can be borrowed off to live virtually income tax free.

The tax would be levied on anyone with more than $1 billion in assets or more than $100 million in income for three consecutive years — which applies to about 700 people in the United States. Initially, the legislation would impose the capital gains tax — 23.8 percent — on the gain in value of billionaires’ tradable assets, based on the original price of those assets.

For people like the Facebook founder Mark Zuckerberg, the Amazon founder Jeff Bezos and the Tesla founder Elon Musk, that hit would be enormous, since the initial value of their stocks was zero. They would have five years to pay that sum.

After that, those billionaires would face an annual capital gains tax on the increase in value of their tradable assets over the course of the year.

The legislation was also drafted to allow billionaires to continue their philanthropy without any tax penalty for money given away.

Democrats say the billionaires tax could be one of the most politically popular elements of their social safety net and climate change bill, which is expected to cost at least $1.5 trillion.

But implementation could be tricky. Billionaires have avoided taxation by paying themselves very low salaries while amassing fortunes in stocks and other assets. They then borrow off those assets to finance their lifestyles, rather than selling the assets and paying capital gains taxes.

The plan already faced resistance from some House Democrats who worry that it may not be feasible and could be vulnerable to legal and constitutional challenges. The Constitution gives Congress broad powers to impose taxes, but says “direct taxes” — a term without clear definition — should be apportioned among the states so that each state’s residents pay a share equal to the share of the state’s population.

The 16th Amendment clarified that income taxes do not have to be apportioned, and proponents of the billionaires tax have been careful to portray it as a tax on income, not wealth.

Democrats are still searching for ways to strengthen the climate provisions in President Biden’s environment and social policy bill just days before he is set to appear at a United Nations climate summit that begins on Sunday in Glasgow, and some lawmakers say they have not given up the push to include a tax on planet-warming carbon dioxide pollution.

The White House is urging lawmakers to agree on a framework for the legislation before the president meets other world leaders at the summit. Mr. Biden hopes to point to the bill as evidence that he will be able to meet his ambitious promise that the United States will cut its planet-warming pollution 50 percent from 2005 levels by 2030.

As it stands now, passage of the bill, which is expected to include roughly $500 billion in spending on climate and environmental provisions, would get the United States up to half the way toward that target, according to an analysis by Rhodium Group, an independent policy research firm.

The package is set to include about $300 billion in tax incentives to promote renewable energy and electric vehicles. Until recently, Mr. Biden had hoped that it would also include a $150 billion program to pay electric utilities to close fossil fuel-fired power plants and replace them with wind and solar generators, and to penalize those that do not do so. The combination of that program and the tax credits would have allowed Mr. Biden to credibly claim in Glasgow that the United States was on track to meet its climate targets.

The clean electricity program was dropped at the insistence of Senator Joe Manchin III, Democrat of West Virginia, whose home state is a major coal and gas producer. But environmentally minded Democrats are still trying to include other programs to cut emissions.

Senator Sheldon Whitehouse, Democrat of Rhode Island and a vocal environmental advocate, said on Tuesday that once Democrats agreed on an overall framework for the bill, they would then craft a companion “emissions framework.” Mr. Whitehouse described a plan in which Democrats would commit to a top-line level of emissions reductions in the bill and then add policies to the legislation to achieve those cuts.

“Once we sort out the spending and pay-fors, and then once we know what we need to do for emissions reductions, that’s when the work on a carbon fee begins in earnest,” Mr. Whitehouse said.

But challenges remain for Democrats, who need every vote in their caucus to push the bill through the Senate. Mr. Manchin has expressed strong reservations about a carbon tax, and the White House fears that such a levy could open Mr. Biden to accusations that he is breaking his pledge not to raise taxes on the middle class.

Democrats seem to have coalesced around other provisions, including $13.5 billion to build electric vehicle charging stations, $9 billion to make the electric grid more conducive to transmitting wind and solar power, and $17.5 billion to reduce emissions from federal buildings. There is also likely to be $40 billion to promote climate-friendly farming and forestry programs, $30 billion for a “green bank” to help communities finance renewable energy projects and $10 billion to help rural electric cooperatives cover the cost of switching from coal plants to renewable energy.

If something about this week’s frantic negotiations over President Biden’s domestic agenda seems achingly familiar, there’s a good reason.

Democrats went through the same painful dance — a legislative deadline, a marathon round of private talks with centrist holdouts, ultimatums from progressives — just a month ago, emerging without a deal and punting until this month.

All the same elements are in place now as Mr. Biden and top Democrats toil to strike a compromise that will allow their sprawling social policy, climate and tax increase bill and a separate, $1 trillion bipartisan infrastructure bill to move forward.

First, there is a hard deadline for approving the infrastructure measure before federal highway programs lapse on Sunday, which could force the furlough of thousands of Department of Transportation workers and shut down public works projects.

Then there are the ongoing, round-the-clock talks to entice two Democratic senators, Joe Manchin III of West Virginia and Kyrsten Sinema of Arizona, into the party fold on the broader domestic policy bill.

And of course, there are progressives in the House growing increasingly uneasy as they see some of their priorities being slashed or left on the cutting room floor. Trying to flex their recently developed muscle, some progressives want a House vote on final legislative language on the social safety net bill before agreeing to vote for the infrastructure measure.

It has all conjured up an eerie sense of déjà vu among Democrats on Capitol Hill, where lawmakers and aides remember all too well the last week of September, when they failed to get either an agreement on the safety net legislation or a floor vote on the infrastructure plan, setting up this repeat performance.

Given the political forces at play, the outcome could be the same this time. But Democrats believe there are some distinctions. They say they are further along in the talks with the two reluctant Senate Democrats and have narrowed their differences, putting them closer to a final agreement.

And while progressives are unhappy with the scaled-down scope of the plan — which some of them initially wanted to total $6 trillion and is now in the neighborhood of $1.75 trillion — many of them have accepted the political reality that a costlier bill cannot squeak through a Congress where Democratic majorities are so slim.

Time pressure is also mounting. Democrats would dearly like to pass the infrastructure measure before the highway program expires on Halloween. It would not only avert a disruption, but could help the Democratic candidate, Terry McAuliffe, in the tight Virginia governor’s race next week.

Democrats also want to send Mr. Biden to climate talks in Scotland next week with new programs to curb emissions firmly in hand. And they would like to end the unsightly sausage-making that is going on so they can start selling the benefits of the measures to those who could gain from them, rather than keeping the focus on what is being jettisoned.

Speaker Nancy Pelosi was hard at work Tuesday morning trying to keep the pressure on.

“There’s not that much more time,” Ms. Pelosi said as she left a private party meeting. “We have to have decisions largely today, a little bit into tomorrow, so we can proceed.”

Of course, something about that sounds familiar as well.

The budget reconciliation process allows Congress to advance certain spending and tax bills on a simple majority vote, freeing lawmakers in the Senate from the 60-vote threshold most legislation must meet to be considered. Democrats are aiming to use the process to pass their sweeping social safety net and climate change measure, which carries much of President Biden’s agenda, in the face of united Republican opposition.

The process begins with a budget resolution, which establishes a blueprint for federal spending and directs congressional committees to write bills to achieve certain policy results, setting spending and revenue over a certain amount of time. Its name refers to the process of reconciling existing laws with those directives. Here are some key things to know about the legislative maneuver.

There are strict rules on what can be included.

While reconciliation allows senators to scale procedural and scheduling hurdles, it is also subject to strict limits that could constrain any package Democrats seek to pass.

In the Senate, the “Byrd Rule,” established by former Senator Robert Byrd of West Virginia, bars extraneous provisions — including any measure that does not change revenue or spending, that affects the Social Security program or that increases the deficit after a period of time set in the budget resolution. It is intended to ensure that the reconciliation process cannot be abused to jam through unrelated policies.

The rule’s name lends itself to a number of bird-related puns commonly used to describe the stages of the process. There is the “Byrd bath,” when the Senate parliamentarian scrubs and analyzes a bill for any provision that violates the rule if a senator raises a concern about a violation. Anything that does not survive the scrutiny is known as a “Byrd dropping” and is removed from the legislation.

Vice President Kamala Harris could overrule the parliamentarian, but that has not been done since 1975.

The legislative math is proving tough for Democrats.

A budget blueprint was advanced in August and committees have been working on drafting the reconciliation legislation, but centrist Democrats in the Senate who have balked at the $3.5 trillion price tag have created an impasse as party leaders try to negotiate a compromise.

Because Republicans have made it clear they are unified in their opposition, Democrats cannot afford to lose even one vote from their party in the Senate. In the House, the math is almost as challenging: If every representative voted, Democrats could afford to lose only three of their members.

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