Washington Weekly: House Passes a Different Infrastructure Bill

The Senate was not in session. The House passed a $715 billion infrastructure bill (see below), voted to remove Confederate statues from the Capitol and created a select committee to investigate the events of January 6.

The Senate and House will be out of session to celebrate the Independence Day holiday until July 12 and July 19, respectively.

Bifurcated Infrastructure Bills Moving Slowly.

Last week’s agreement between President Biden and a bipartisan group of Senators was just the beginning of the process of passing a major infrastructure agreement into law. This week, the White House and the bipartisan group focused on working out the details of the $1.2 infrastructure bill. One particularly delicate issue is how to give the IRS more authority to conduct more audits (and thereby generate more revenue to help pay for infrastructure) without being overly intrusive to taxpayers. The negotiators will continue their work into next week, but the holiday could slow those efforts. The bipartisan bill could still fall apart if an agreement on the pay-fors does not materialize or progressives do not secure a commitment on a follow-up bill addressing other issues such as climate change (see below). The details – and therefore the fate of the bill – likely will be determined over the course of the next week or so.

The Bigger Bill.

Meanwhile, congressional Democrats continue to develop plans to pass a second and much larger spending bill that will combine other infrastructure spending with a wide range of new social spending on issues such as health care, education and child care. This is the plan that will be funded in part by tax increases on businesses and wealthier individuals. That plan, which will move forward through the budget reconciliation process (requiring a majority vote instead of the usual 60 votes in the Senate), will first require passage of a budget resolution that authorizes the new spending. The Senate will try to pass that budget resolution later this month. Its efforts to pass the actual spending bill likely won’t occur until either September or October. The size of the spending plan is still the subject of debate among Democrats and will depend in part on whether a bipartisan bill passes first. The range will be anywhere from $1.5 trillion and $4 trillion. If a bipartisan bill passes first, the second bill will be closer to the former figure; if not, it will be closer to the latter figure.

House Passes a Different Infrastructure Bill.

The House passed a smaller infrastructure bill ($715 billion) that focuses on surface transportation and water projects, but this is not nearly as significant as the bipartisan bill under negotiation or the Democratic-only spending bill. Many of the House bill’s provisions are bipartisan and will be integrated into one of the bills mentioned above. The bill covers transportation spending (e.g. road, bridge and port improvements) and drinking water safety. However, it does not cover a wider array of spending that is likely to be included in the other two bills. Notably, the bill was not offset at all by either new tax revenue or spending cuts in other areas, which is why most House Republicans opposed the measure. House Speaker Nancy Pelosi (D-CA) can rightfully claim that only the House has passed an infrastructure bill so far this year, but the reality is that the more meaningful activity on infrastructure legislation is occurring across the street in the Senate.

Broad Trade Negotiations on Ice?

Frustration is building in the US business community on the slow development of trade policy in Congress and the Biden administration. Not only have pending challenges with China not been resolved or addressed in a substantive way, but this week Biden administration trade officials indicated that they would not negotiate a free trade agreement with the United Kingdom (UK) until next year. A US-UK trade agreement has always been considered a relatively easy assignment in view of the strong alliance and the necessity of a separate deal in the wake of the UK’s departure from the EU (many US-UK trade rules were established in US-EU trade agreements). Beyond these issues, the Biden administration also has not asked for an extension of “trade promotion authority,” which expires at the end of July. Such authority limits Congress to vote only for or against trade agreements negotiated by the President rather than amending them significantly (and forcing them to be rewritten). This authority has been used in the past to expand trade arrangements the US has with other countries and open new markets for US companies. The Biden administration has been busy on multiple fronts in its first 150 days in office, but trade policy seems to have taken a back seat so far.

Like-Kind Exchanges.

We have received a few questions about the fate of like-kind exchanges, also known as 1031 exchanges, which allow taxpayers to exchange property that is similar and defer the recognition of gain. President Biden’s budget would dramatically scale back this tax incentive by limiting it to $500,000 per year ($1 million for married couples). This section of the tax code has been in existence for over 100 years, and there is mounting opposition to the proposed changes from some powerful lobbying groups, including the real estate and agriculture sectors. In fact, over a dozen Democrats representing agriculture areas have called for a carveout for farmland areas. Other Democrats may voice concerns about the impact on the real estate market. With that in mind, it will be hard for Democrats to advance these proposed changes in a tax bill later this year. We believe Democrats will eventually scale back or ditch this proposal in its entirety as they write their tax bill.

Regulatory Review.

President Biden this week signed a resolution under the Congressional Review Act (CRA) that overturns a Trump administration regulation that provided greater certainty regarding the regulatory requirements for loans originated in partnerships between national bank and nonbank entities. Many Democrats argue that it allowed nonbank lenders to evade state law interest rate limits. A CRA resolution only needs a majority vote (instead of a super-majority of 60 votes) to advance in the Senate, but it also needs to pass within a 60 legislative day window. President Biden’s action follows narrow passage in largely party-line votes in both the Senate and House. In 2017, Republicans in Congress and the Trump administration used the CRA effectively to overturn 16 Obama-era regulations. However, Democrats have not been as active in passing CRA measures, in part because of other competing priorities and because CRA measures place limitations on the ability of regulators to issue new requirements. Instead, the Biden administration has been relying on executive action to reverse Trump administration regulatory measures.

Congressional Earmarks.

Earlier this year, the House announced the return of earmarks, which are provisions in spending bills to provide dedicated funds for projects, programs or grants in specified locations. Lawmakers from both parties added earmarks to large spending bills in the past to ensure funding for specific projects within their districts or states, but the practice was banned in 2010 as lawmakers at the time felt that too many had become wasteful (like the “Bridge to Nowhere” project in Alaska). Earmarks have returned this year under a more innocuous name, “community project funding.” New rules have been implemented to reduce the number of such requests from each member and to make them transparent through public posting. Yesterday’s vote on the House infrastructure bill was a test for the new practice. Members of both parties had 1,500 community project funding requests totaling over $5.7 billion that were included in the bill. While many of these projects are likely very legitimate, it will just take a few bad examples to lampoon the reinstatement of earmarks and the perils of being too eager to “bring home the bacon.”

Donald Rumsfeld RIP.

Donald Rumsfeld passed away this week at the age of 88. Like many longtime US officials, he was not universally popular but he served three presidents in senior capacities, including as defense secretary under two presidents. He is the only person to have ever done that as far as we know. He didn’t always exercise great patience with the media, and we will remember him for his memorable quote in response to a reporter’s question about evidence that Iraq had supplied terrorist groups with weapons of mass destruction.

“Reports that say that something hasn't happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don't know we don't know. And if one looks throughout the history of our country and other free countries, it is the latter category that tends to be the difficult ones.” Rest in peace, Secretary Rumsfeld.