9.08.2021 Washington Update

Reconciliation – The brief respite of (a truncated) August recess is over, and if you thought a few weeks of vacation would replace drama and chaos with clarity and direction, well…who would have thought that?

Sen. Joe Manchin’s (D-WV) op-ed last week announcing his opposition to a $3.5 trillion reconciliation bill was consistent with his thinking, and therefore unsurprising, but nonetheless it still whipped up the Beltway message machine.  Progressives were outraged, Republicans were gleeful, and Democratic leaders were stoic.  We’ve heard it said that Manchin’s missive means that some bill less than $3.5 trillion will pass.  Maybe, but nothing is certain except death and taxes (and now, apparently, death taxes).  If you want to reduce this exercise to something simple: it’s all about the math.

To that end, House and Senate Democratic committees conferred during August about the contours and content of reconciliation.  The Senate Finance and House Ways and Means committees continue to shoulder the bulk of the effort, including the mammoth task of figuring out the specifics of pay-fors, which include, among others, raising the corporate tax rate, the top marginal personal income tax rate, the capital gains rate, and reforming international tax rules. Also in the mix are potential excise taxes on CEO pay and stock buybacks.

The non-binding deadline for House committees to complete their portions of the reconciliation package is September 15. The House Natural Resources and House Oversight committees began markups last week, but many other committees, including Ways and Means, and Education and Labor, won’t begin until this Thursday.  The Ways and Means markup will span several days and conclude next week with the debate on revenue raisers.  The House Financial Services, Judiciary, and Energy and Commerce committees will start on September 13, while the House Transportation Committee will follow on September 14.

As the House committee process unfolds, informal, behind-the-scenes efforts on the Senate’s Byrd Rule have begun.  Specifically, Senate minority committee staff are sending background policy memos to the Parliamentarian’s staff as a means of framing Byrd Rule debates on reconciliation.  These efforts will take time and will undoubtedly affect the House timeline.   Further complicating that timeline is the necessity of obtaining formal scores of the legislation from the Congressional Budget Office and the Joint Committee on Taxation.

There are also the continued questions about Senators Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ), that is, what is the ultimate number ($3 trillion? $2 trillion?) and the policies they can bear on reconciliation?  Though they remain in the background, several Senate Democrats facing tough reelection fights next year will face the same questions.  (Rest assured, they won’t be in the background much longer.)

Democrats are trying to complete work on their reconciliation package by the end of September, so they can then vote on the bipartisan infrastructure package before September 27, conforming to a deal struck between Speaker Nancy Pelosi (D-CA) and several Democratic moderates.   This is ambitious, to say the least, particularly because progressives could delay consideration of the bipartisan infrastructure bill if they object to the parameters or timing of reconciliation.  Again, with just three seats to spare, for Pelosi and Democratic leaders, it’s all about the math, that is, when it adds up to 218 and 51.

Appropriations & Continuing Resolution – As the fiscal year draws to a close (September 30th), a continuing resolution (CR) extending to early December appears likely.  But passing it is another matter: Republicans have vowed to oppose legislation increasing the debt limit, which, Democrats have promised, will be attached to the CR.  Sen. John Cornyn (R-TX) put it bluntly, “I don’t think there are going to be any Republican votes to increase the debt limit without some structural reforms.  So I think if the Democrats are going to pass it, they ought to stick it on [budget] reconciliation.”

Democrats, however, have answered that with a resounding “no.” Does this mean, then, that Republicans will filibuster the CR?  Doing so could be dicey, given the political and financial consequences, and especially if Democrats also include emergency spending to address the fallout from Hurricane Ida and western wildfires.  In any case, we expect the Democrats to start pounding away on a time-honored theme—government shutdown, government default, and hurricane victims left empty-handed—and to do so relentlessly for the next three weeks.  (Notably, the Congressional Budget Office believes the Treasury Department’s use of extraordinary measures to avert default will be exhausted at the end of October or November.)

Also complicating the debate is the White House’s request to include supplemental funding in the CR for hurricane and wildfire relief funds as well as Afghanistan response aid.  Other policies such as abortion could also be advocated by some members during the process.

The appropriations process will remain a quagmire until a top-line spending agreement is reached between Democratic and Republican leaders. That won’t be easy. Republicans want a commitment to dollar-for-dollar spending increases in defense and non-defense spending.  Both the House and Senate Armed Services committees voted to increase top-line spending in the National Defense Authorization Act above President Biden’s budget request, which was a blow to progressives seeking Pentagon cuts.

Republicans also want to renew a previous agreement with Democrats to keep longstanding bipartisan policy riders in and poison pills out. For Republicans, the top priority is keeping the Hyde Amendment.  Also, expect a fight over border security funding.  It’s worth noting that a CR will maintain Trump-era spending levels for the Department of Homeland Security, much to the consternation of Democrats.

National Defense Authorization Act – Both the House and Senate Armed Services Committee have now completed consideration of their versions of the fiscal year 2022 NDAA, and each bill is expected to have floor time in their respective chamber soon after reconciliation has been completed.  This could occur sometime in October.