Washington Weekly: Democrats’ Budget Reconciliation Bill

U.S. Office of Public Policy, 19 November 2021

This Week:

The House passed President Biden’s Build Back Better legislation (see below). It also censured and removed Congressman Paul Gosar (R-AZ) from his committee assignments. The Senate began debate on the fiscal year 2022 defense authorization bill (see below) and approved various Biden administration nominees.

Next Week:

Both the House and Senate will be out of session to celebrate Thanksgiving and will return to Washington the following week.

The Leads

Democrats’ Budget Reconciliation Bill.

This large package of social spending and tax provisions, also known as the Build Back Better Act(PDF, 487 KB), has proven more difficult to pass than many had thought. In the past few weeks, the bill has been scaled back from $3.5 trillion to $1.75 trillion of spending to meet the demands of key Senate Democrats. There also has been a lot of maneuvering with respect to the content of its spending and tax provisions. As a first step, the House passed its version of the bill today. Some moderate Democrats in the House didn’t want to vote on the legislation earlier this month because the bill had not received an official budget “score” to determine how much of the bill’s spending was offset through tax increases or other measures. Yesterday, Congress’ nonpartisan budget office released that official score, which indicated that the bill would add $367 billion to the deficit. As we noted last week, the bill will be subject to potentially significant revisions in the Senate. Passage of the bill will be more difficult in the Senate, which will take up the bill in December with the hope of passing it by year’s end.

Annual Defense Bill and Riders.

The defense authorization bill for fiscal year 2022 is currently under consideration in the Senate, where it has attracted hundreds of proposed amendments. The annual defense bill has passed each year in Congress for the last 59 years. Since its passage is anticipated every year, lawmakers inevitably try to use the bill as a vehicle for passing other policy priorities, including many that have nothing to do with defense. This year is no different. The defense policies in the bill generally are not controversial, but some of the measures potentially added to the bill are. Majority Leader Chuck Schumer (D-NY) wanted to include his bill to increase US semiconductor capacity (in connection with US competition with China), but there was agreement to address that legislation separately. Other consequential measures being considered this year include a safe harbor for banks to provide services to covered cannabis businesses, various enforcement measures against China and an enhancement of US government-private sector information sharing to deter ransomware attacks. This bill received plenty of attention in the Senate this week and will likely pass in the first week of December. The House already passed its own version of the defense bill in September. House and Senate negotiators will need to hammer out a final version once the Senate passes its bill. The fate of the unrelated amendments will be determined in those conference negotiations between the two chambers. Of the three issues mentioned above, the ransomware issue has bipartisan support and should have the clearest pathway to approval.

Other Issues

Other Tax Items.

In past publications, we have focused on some of the major tax changes (like a new book minimum tax on corporations and various tax surcharges on high-income individuals) in play as Democrats develop the aforementioned budget reconciliation bill. However, we also wanted to flag that there are about 50 separate tax changes in the House bill and many are more overlooked. Examples include a $250 tax deduction for employee uniforms, a retroactive change that recognizes married tax status of gay and lesbian couples prior to 2010 and a nicotine tax. The nicotine tax is not technically a tobacco tax and would tax e-cigarettes and vaping liquids. There are dozens of tax provisions not receiving much media attention but could be impactful to many individuals and businesses.

Retirement Policy.

Last week, we commented on the retirement provisions of the Build Back Better Act. Nonetheless, there are additional changes to retirement policy on the horizon that are worth mentioning separately. As we have previously commented, there is a bipartisan bill with a number of positive changes in the retirement space to bolster retirement savings, known as the SECURE Act 2.0. These changes include increasing the required minimum distribution age to 75, allowing companies to match student loan payments with a retirement contribution and allowing for increased catch-up contributions for those between the ages of 62 and 64. These changes, and a few others, have a chance to pass in the coming weeks separately from the reconciliation bill. While we have been bullish on this bill’s passage, a crowded calendar and partisanship triggered by the anticipated passage of the reconciliation bill may slow the SECURE Act and push it into next year.

Debt Ceiling Urgency?

Treasury Secretary Janet Yellen said this week that the department may be unable to pay its bills after December 15 if Congress fails to extend the debt ceiling by then. As with most debt ceiling declarations, however, we believe there is some flexibility to this position. Secretary Yellen included in her estimate new obligations from the recently passed infrastructure bill, which could be waived for the time being. This would likely push the real date of potential default into January. Senate leaders are discussing options to pass an extension of the debt ceiling, which is good news. One possibility is an agreement that would have Democrats pass a bill through the budget reconciliation process (with only Democratic votes) in an expedited manner. If this path is agreed to, Democrats would need first to pass a separate budget resolution, which would occur earlier than the actual debt ceiling extension.

Biden and Xi Talk.

President Biden and Chinese President Xi spoke earlier this week for the first time this year amidst significant tensions between the two countries on a wide range of issues. As expected, no significant results came from the call, but the open lines of communication and frank dialogue may help lower tensions a bit. The two leaders covered a handful of issues and agreed to some modest but helpful changes to visa policies and journalist access. Notably, no progress was reported on the trade challenges that are highlighted in the phase one trade agreement negotiated by the Trump administration, particularly in tariff reductions. The reality of the policy issues that challenge the relationship is that they are fundamental (particularly the competition to win the technology race and Taiwan) and will not go away anytime soon. Both sides agreed those issues must be “managed,” but it seems that this will be very difficult given both countries’ conflicting global ambitions. Communications at the highest level can often smooth over some of the rough edges in a contentious bilateral relationship, and we hope that this was a result of this week’s call. However, we see continued tension ahead over the same issues and new ones as the US-China competition will only intensify.

Banking Nomination Fireworks.

The Senate Banking Committee this week had a very contentious hearing on the nomination of law professor Saule Omarova to lead the Office of the Comptroller of the Currency (OCC), the regulator of national banks. Her nomination is broadly opposed by the banking industry given her support for various controversial policies in academic writings. Notably, she has advocated to “end banking as we know it” by requiring individuals to directly hold depository accounts with the Federal Reserve (instead of with banks). She also has supported having the Fed intervene (through purchases and sales) in markets like housing and energy to actively set prices. Concerns about these and other views were raised by Republicans and some Democrats on the committee. Democratic allies promoted the nominee’s compelling personal story (as an immigrant who grew up in Kazakhstan when it was under Soviet control) and pushed back against what they saw as some personal criticisms of the nominee. While many Democrats circled the wagons in support of the nominee, she is unlikely to be confirmed in an evenly divided Senate where the opposition of just one Democrat can sink a nomination. As we highlighted last week, the administration’s important decision on whether to renominate Fed Chairman Powell is on deck and is expected to be announced before Thanksgiving.

The Last Word

Old Folks’ Club.

Senator Patrick Leahy (D-VT), the longest serving sitting senator, announced this week that he would not seek re-election next year. Senator Leahy is 81 years old and has served in the Senate since 1975. He is likely to be replaced by Congressman Peter Welch, who will be 75 at the time of next year’s election. Welch has served in the House for eight terms. Vermont’s other Senator, Bernie Sanders, is 80 years old. Out of 100 Senators, 34 will be 70 years old or older next year. Five members are at least 80 years old. Another 22 will be between 65 and 69. In a work environment where 56 percent of its members are 65 or older, the Senate is truly unique. Are there other workplaces that can boast of this advanced age among its principals?