Why Democrats Can Still Pass a $3.5T Bill
The Senate this week BID adieu to BIF and today may BID farewell to BID. The $579 billion in new spending from the bipartisan infrastructure framework (BIF) became $550 billion in new spending from the bipartisan infrastructure deal (BID). As the Senate continues consideration, actual legislation may be released today, turning BID into a bipartisan infrastructure bill (BIB). On the other side of the track, Senate Majority Leader Chuck Schumer (D-NY) yesterday indicated that all Senate Democrats are on board with moving forward on the FY22 budget resolution that outlines $3.5 trillion in topline spending. “We will move forward on both tracks,” Schumer said. “I’m proud of my Democratic caucus, every one of them voting yesterday for this bill and all pledging to go forward on the second track as well.” There’s still a robust amendment process, a Congressional Budget Office (CBO) score of the bill, and the exact details of the budget resolution that awaits. But my base case is that the bipartisan bill and the budget resolution will pass the Senate in the next two weeks. The budget resolution will then pass the House shortly thereafter.
The big debate, though, is what comes next. There are two theories:
- The BID will decrease the scope of a reconciliation bill or stymie it altogether
- The BID will increase the likelihood of a $3.5 trillion bill
I believe the second theory is the correct reading of the current dynamics. But it’s worth exploring both theories here.
Theory One
A big reason why Republicans like Senate Minority Leader Mitch McConnell (R-KY) are so far supporting the BID is because they think it will engender moderate Democrats to push back against the larger reconciliation ambitions. Better yet, such push back could create a rupture with progressives that could completely derail the reconciliation process, and perhaps, even the BID. That’d be the politically optimal outcome for Republicans who could pin the failure of Biden’s biggest legislative goal on Democrats.
Sinema on Wednesday said in a statement that she does not support a reconciliation bill that “costs $3.5 trillion.” As the main Democratic negotiator of the BIF, Sinema had a significant personal interest in seeing this get the requisite support. Earlier this month, Senate Minority Whip John Thune (R-SD) indicated Republicans were looking to her and Manchin on laying out a reconciliation spending limit in order to get Republican support for BIF. “I think any assurances that can be given are helpful,” Thune said. “You know, if Sinema, for example, or [Manchin], if they have a hard ceiling on what they would vote for reconciliation-wise or what they would vote for tax increase-wise that they would be willing to make public or something like that, all that helps.”
Sinema sort of did just that and while Thune did not vote to proceed to start debate on BID, enough Republicans did, including McConnell. The minority leader said he “was certainly pleased” by Sinema’s statement and said she was “very courageous.” For McConnell, he views indulging Sinema and her work will keep her true to her word that she would buck the Democratic reconciliation agenda. Senator Thom Tillis (R-NC), who is close to Republican leadership, wrote an op-ed this week titled “Senate infrastructure deal is a win for bipartisanship, thanks to Sen. Sinema.” McConnell yesterday embraced (or rather trolled) bipartisan ethos he has eschewed in the past, calling BID an “important basic duty of government.” Republicans believe this adulation only engenders Sinema more to them, given her predilection for palling around with Republicans and appearing as a McCain maverick, which frustrates progressives.
To that end, after releasing her statement opposing a reconciliation bill that costs $3.5 trillion, Rep. Alexandria Ocasio-Cortez (D-NY) clapped back, tweeting, “Good luck tanking your own party’s investment on childcare, climate action, and infrastructure while presuming you’ll survive a 3 vote House margin — especially after choosing to exclude members of color from negotiations and calling that a ‘bipartisan accomplishment.’” Senate Budget Committee Chair Bernie Sanders (I-VT) was a little more diplomatic but said the same thing, noting, “At the end of the day, two pieces of legislation, the bipartisan bill and the budget reconciliation bill, have got to pass the House and Senate. It is my absolute conviction that you’re not going to have a bipartisan bill unless you have a reconciliation bill of $3.5 trillion.” Then there’s House Transportation and Infrastructure Committee Chair Peter DeFazio (D-OR) who all this week has excoriated Sinema and other Senate and White House negotiators on the BID, threatening to rally against it in the House. This perception seemingly of the “Democrats in disarray” has McConnell smiling.
In the end, centrist Democrats will either exact their pound of flesh in a tailored back reconciliation bill and progressives will begrudgingly agree, or everything can come crashing down when even the best of political operators like Pelosi can’t maneuver with just three votes to spare in the House.
This theory of how reconciliation will unfold — either much smaller than $3.5 trillion or not all — is the prevailing view of most market participants. Even PredictIt gives even odds that the corporate tax rate will not increase. That’s essentially giving even odds to Democrats failing in reconciliation.
Theory Two
It was 2017 when Republicans were moving forward with budget resolution on the Tax Cuts and Jobs Act (TCJA). Then Senator Bob Corker (R-TN), a self-professed deficit hawk, came to an agreement with Republicans to move forward on a budget resolution laying out $1.5 trillion in net tax cuts. But he insisted his final vote was contingent on legislation that “does not worsen but hopefully improves our fiscal situation.” In the end, Corker voted for $1.5 trillion in tax cuts, despite all of his bluster. In a 52–48 Republican Senate at the time, Corker’s vote was critical for passage out of the Budget Committee and the Senate floor.
Is Sinema pulling a Corker? It’s worth reading Sinema’s brief statement in full from Wednesday that has received much attention:
“After reviewing the Senate Budget Committee’s outline, I have told Senate leadership and President Biden that I support many of the goals in this proposal to continue creating jobs, growing American competitiveness, and expanding economic opportunities for Arizonans. I have also made clear that while I will support beginning this process, I do not support a bill that costs $3.5 trillion — and in the coming months, I will work in good faith to develop this legislation with my colleagues and the administration to strengthen Arizona’s economy and help Arizona’s everyday families get ahead.”
Sinema is saying she supports the spirit of the Democratic reconciliation agenda but will not support a bill that “costs” $3.5 trillion. Of course, the bill was never expected to cost $3.5 trillion. The TCJA had $5.5 trillion in gross tax cuts but a net cost of $1.5 trillion. Democrats want to have gross spending of $3.5 trillion, but have said it would be fully paid for. That would make the reconciliation bill cost $0, not $3.5 trillion. Now, Sinema may have meant “costs” to be the same as “spends”. Yet there is plenty of wiggle room in this statement for Sinema to support up to $3.5 trillion in spending if the cost is less than that (it surely will be).
Just like Corker buckled under the pressure from party leadership, the pressure will be no less for Sinema, Manchin, and other centrists. Democratic leadership knows it’s now or never for “once-in-a-generation” spending priorities. If they don’t pass a reconciliation bill this year, it’s unlikely they will get another chance next year when they’d have to wait until April. If they lose control of either the House or Senate (which is more likely than not), then there’s no path forward in divided DC for progressive legislation. Reconciliation puts immense pressure on the rank-and-file, in something of a too-big-to-fail mentality for the party’s agenda. What AOC and Sanders are signaling is that if Sinema isn’t on board with $3.5 trillion in reconciliation, the whole infrastructure agenda, including BID will fall. This is House Speaker Nancy Pelosi’s (D-CA) implicit argument in waiting to vote on BID in the House until the Senate passes a reconciliation bill. So Sinema has every incentive to constructively work with Democrats in the reconciliation process. So do other moderates. Senator Mark Warner (D-VA), a centrist who worked with Sinema on the BIF is also a member of the Budget Committee and Finance Committee. He’s in support of up to $3.5 trillion in spending. It’s fellow centrists like Warner who Democratic leadership can deploy to help make the case for the spending agenda.
This doesn’t mean Sinema and Manchin won’t want to leave their marks on the process. It’s what Manchin did during the American Rescue Plan (ARP) reconciliation process. Yet in the end, both Sinema and Manchin supported the $1.9 trillion bill with only very minor changes. They listened to the Democratic market makers in leadership about the importance of the legislation and remaining united. When Biden’s Build Back Better agenda continues to be relatively popular, the impetus for cutting back on spending for the sake of cutting back on spending is relatively weak. There’s not a smaller reconciliation number that will suddenly make Republicans less opposed to it. Depending on how the budget resolution is drafted, policy provisions that can’t get Sinema or Manchin’s support or run afoul of the Senate Byrd Rule could be replaced by the bevvy of other spending priorities Democrats are seeking to include.
Whatever passes the Senate has to pass the House as well. But here, too, the dynamics are similar for the centrists. The difference is that the House members all face elections in 2022, while Sinema and Manchin’s terms don’t end until 2024. Redistricting will change some of the dynamics, but the current most pro-Trump House district that a Democrat occupies is ME-02, which voted for Trump by 7.5 points in 2020. Manchin’s West Virginia voted for Trump by 39 points. If he votes for a final reconciliation bill, it’s hard to see House centrists not doing the same. That’s the nature of a slim majority in a polarized era. The 218th Democratic seat that gave them the majority is not far from the most Trump-leaning Democratic seat. The reconciliation bill may be larger in size than centrists ideally like, but when every House Democrat represents districts with sizable Democratic bases who are keen on having Congress go big, passing a big bill is better politically than underwhelming the base or failing to pass anything at all.
Following Republicans passing the TCJA with Corker’s support in 2017, there were the midterm elections in 2018. Two people McConnell was keen on defeating in 2018 were Manchin and Sinema. McConnell reportedly told President Trump at the time that “We’re going to do everything in our power to beat [Manchin] when he comes up for reelection. …We’re going to crush him like a grape.” After winning reelection, Manchin gave McConnell a jar of West Virginia “crushed grapes” jam. McConnell-allied Super PACs spent more than anyone in the 2018 Arizona senate race to defeat Sinema, who was running against then Rep. Martha McSally (R-AZ). There’s no doubt McConnell will have the same zeal to try to defeat both Sinema and Manchiin again in 2024 if they are running for reelection. There’s no doubt Schumer would have an equal zeal to defend the two Democrats. Because at the end of the day, McConnell can ingratiate himself with Sinema, but he’s a Republican and she’s a Democrat. She may have a different Democratic ethos but her voting record is that of a Democrat. There’s more upside for Sinema to go along with Democratic leadership than to push back to please her Republican colleagues. But to get the BID to pass the Senate, she may just be playing the right strategic game.
At this stage, I continue to believe Theory Two is the more accurate reading of the current dynamics. But, even if it’s the correct reading, it’s in no way a fait accompli. Some items I’m looking for that could impact my priors:
- The details of the budget resolution. If Democrats write it so there’s a net cost below $1 trillion, I have a hard time seeing how they come up with scorable offsets to pay for $3.5 trillion. The committee allocations will also matter as there will be some inevitable Senate Byrd Rule issues. If there’s no excess room in one committee to spend more when a Byrd Rule issue in another committee is nixed, then that $3.5 trillion figure would come down.
- House centrists and progressives put their money where their mouth is. Political grandstanding is often more bark than bite. Anonymous quotes or saying “we should” do this means diddly squat to Democratic leadership. But maybe these members believe nothing is better than something. I think that’s wrong, but even if I’m mostly right, Democrats can only afford three defections.
- Sinema and Manchin have support among other centrists. The two are often the public face of opposition to progressive agenda items like raising the minimum wage to $15 or nixing the filibuster. But in both instances, there is quieter support among other moderates for their position. If that’s the case on a $3.5 trillion spending bill, then that will only bolster the two to remain firm in negotiations. Yet with Warner seemingly on board with Sanders and Schumer, I’m not sure that’s the case.
- There’s a Tea Party-like revolt to Build Back Better. There’s increasing concerns about inflation, and while it’s more a political than economic issue on a long-term spending agenda, there’s enough concern among Democratic leadership that they are proactively trying to rebut any inflation attacks. There hasn’t been the grassroots attack on Build Back Better that was seen with Republican healthcare repeal-and-replace efforts or the Affordable Care Act, but maybe that could change over August recess and the fall.
- The literal deadline. A Democratic vacancy in a Senate seat controlled by a Republican governor is the end to the reconciliation agenda. Democrats who are eager to enjoy a hot vax summer should wear extra sunscreen.
