The Infrastructure Bill is estimated to cost $1.2 trillion over five years and the Reconciliation Bill, $3.5 trillion over ten years. Together, both bills form the foundation for President Biden’s economic agenda and are part of his Build Back Better plan.
The US Congress is meeting this week to discuss one of the most sprawling pieces of economic legislation since President Roosevelt’s ‘New Deal’ in the 1930s. Apart from a bill to suspend the debt ceiling, lawmakers will consider two spending bills, one primarily focused on infrastructure (in name at least) and the other, a social spending bill, henceforth known as the Reconciliation Bill.
The Infrastructure Bill is estimated to cost $1.2 trillion over five years and the Reconciliation Bill, $3.5 trillion over ten years. Together, both bills form the foundation for President Biden’s economic agenda and are part of his Build Back Better plan. The Infrastructure Bill, which has already been passed by the Senate, is a bipartisan effort, backed by 19 Republican Senators whereas the Reconciliation Bill is considerably more controversial, drawing concern from both Democrats and Republicans alike.
Currently, House Speaker Nancy Pelosi (D-Cal) has threatened to tank the bipartisan Infrastructure Bill unless House Democrats agree to pass the Reconciliation Bill alongside it. Progressive Democrats align largely with Pelosi, but several centrist Democrats are reluctant to endorse the ambitious piece of legislation due in part to its extraordinarily large price tag. This has caused a political standoff that could result in neither bill being passed, which, if Republicans refuse to suspend the debt ceiling (more on that later), is a possibility anyway.
Democrats have a razor thin majority in the House and Senate and can therefore ill-afford to lose any votes from within their own party, especially considering that no Republican is expected to vote for the Reconciliation Bill. Democrats have agreed upon a self-imposed deadline of September 27 to vote on both pieces of legislation.
The process for passing both bills is, as usual, Kafkaesque. To understand why, we first need to look at how the Reconciliation Bill came into existence. Biden had initially proposed a much larger $2.3 trillion Infrastructure Bill that would include both hard and human spending. Hard spending refers to direct investments in roads, bridges, clean water and so on, whereas human spending refers to less tangible investments in matters including family care, education, and climate change. When Republicans made it clear that they would not endorse Biden’s initial bill, Democrats went on to draft a pared down version, resulting in the current iteration that is supported by both parties. To account for the provisions not included in this smaller bill, Democrats drafted the $3.5 trillion bill as an independent piece of legislation that would not require Republican votes.
Typically, the House operates under a system of basic majority, but the Senate requires a minimum of 60 votes (out of 100) to pass most legislative matters. Democrats have 50 seats in the Senate, but if votes are split evenly (50-50 on both sides), the Vice President, in this case, Kamala Harris, gets to cast the tie-breaking vote. To side-step the 60-vote rule, Democrats are using a process known as budget reconciliation to pass the larger spending bill. Under the budget reconciliation process, any items that change spending (money taken out by the government) or revenue (money taken in by the government), can be passed by a simple majority of 50 votes plus the tie-breaking vote by Harris, a Democrat.
Items not related to the budget (spending or revenue) cannot be included in the Reconciliation Bill. The person who determines this is Senate Parliamentarian Elizabeth McDonough who recently dealt a blow to Democrats by declaring that their plan to pass a pathway to citizenship for immigrants born in the US did not constitute a budget item. Reconciliation bills also have to be budget-neutral in the long term, so Democrats have to raise revenues to offset every new policy they want to pay for.
Although reconciliation is meant to help Congress pass budget bills, it is often expanded to include a bunch of other policy proposals. Democrats used the process to pass health care changes in 2010 and more recently, Republicans used it to pass tax cuts in 2016. Reconciliation first starts with both chambers of Congress approving a blueprint, which they have for the current Reconciliation Bill. However, that blueprint only allows legislators to move forward with the reconciliation process and doesn’t mean that the actual legislation has been approved. The Reconciliation Bill is yet to be passed by either chamber, while the Infrastructure Bill made it through the Senate by 69-30 votes in August.
Provisions of the bills
The Infrastructure Bill contains matters related to hard spending and represents the largest infusion of federal investment into infrastructure projects in more than a decade. Hundreds of billions of dollars would go into repairing and replacing aging public works projects like airports, railway lines, bridges, and roads. Given the increasing transition to working from home that looks likely to continue after the pandemic, the bill’s inclusion of $65 billion towards improving high-speed internet is noteworthy as well.
The bill also includes many policy changes, most significantly related to climate change which serves as a tacit acknowledgment from Democrats and Republicans alike that America is not prepared to handle the growing risk of climate disasters. The bill includes $73 billion to upgrade the nation’s electricity grid to carry more renewable energy, $7.5 billion to construct electrical vehicle charging stations, $17.5 billion for clean busses and ferries and $5 billion for removing lead pipes. However, while the Infrastructure Bill is a huge step forward in and of itself, it includes far less funding for clean energy and transit projects than Biden initially wanted.
The Reconciliation Bill, with its human spending component, addresses several of these concerns by targeting issues related to health care, child and elderly care, education, and climate change. The bill also expands upon the $1.9 trillion pandemic relief package that the Democrats fast-tracked through Congress in March, increases healthcare subsidies, and raises the duration of monthly payments going to families with children. The last provision is estimated to cut child poverty by nearly half.
The bill also includes several new initiatives. It proposes expanding Medicare to include dental, hearing and vision, provides funding for elderly care, makes pre-school and two-year colleges free, funds research on the effects of climate change on agriculture and changes the tax code to subsidise the purchase of electric vehicles. In order to pay for these provisions (as reconciliation bills have to remain budget-neutral in the long term), Democrats plan on imposing a tariff on goods imported from countries with weak climate policies and increasing taxes on wealthy people and corporations.
Criticisms of the bills
As it stands, there are around 100 progressive House Democrats who will refuse to sign the Infrastructure Bill (which has already been approved by the Senate) unless it is tied to the reconciliation bill (which is yet to be approved by either chamber.) Those Democrats, led by Speaker Nancy Pelosi, have the ability and numbers to tank both bills unless moderate Democrats agree to pass the Reconciliation Bill. If Democrats align together, they have the ability to pass both bills in the House and the Senate. Moderate Democrats take issue with the Reconciliation Bill for two primary reasons – its cost and its provisions for pharmaceutical companies.
In terms of cost, there has been no comprehensive analysis of the Reconciliation Bill, but the assumption is that taxes would have to be raised significantly in order to fund it. For the Infrastructure Bill alone, the US Congressional Budget Office estimated that its passage would add $256 billion to the federal deficit, which is already at its highest, over the next decade. Biden has refused to increase taxes on people earning under $400,000 a year who make up the vast majority of the US population, leading several observers to question where the funding will come from. Even if tax rates are increased to meet the costs of the bill, there are three major problems.
First, tax hikes are typically rolled back by changing administrations. In the last 30 years there have been three major tax cuts and only one minor tax hike in 2013. Second, even when the tax rate was as high as 35 per cent in 2013, a report from the Government Accountability Office estimated that US corporations paid an average effective tax rate of between 12.6 per cent and 22 per cent. When loopholes exist, tax rates rarely signify the amount of revenue the government can expect to collect. Lastly, when corporate tax rates climb too high, companies hire fewer workers and often relocate overseas. Critics of the Build Back Better scheme argue that even if increased taxation generates enough revenue to pay for the bills, it could do so at the cost of US economic competitiveness.
In terms of pharmaceutical companies, the Reconciliation Bill would allow the government to leverage Medicare to negotiate drug prices, potentially generating billions of dollars in savings by doing so. Senator Kyrsten Sinema (D-Az), one of the authors of the infrastructure bill, strongly opposes Biden’s approach to drug negotiation. Sinema ranks as one of Congress’ leading recipients of pharmaceutical donations according to a study by Kaiser Health News. She is not the only Democrat to oppose the bill however, with Senator Joe Manchin (D-W.Va) also meeting with Biden and Sinema to discuss the exorbitant price tag. If either Senator abstains or votes against the reconciliation bill in the Senate, it will fail to pass (assuming that no Republican votes for it.) Reportedly, in a private meeting with the two, Biden acknowledged their concerns but maintained that his hands were tied as any modifications to the reconciliation bill would alienate support amongst the progressive Democrats in the House, who would then vote against both pieces of legislation.
Finally, Republicans have stated that they are unwilling to raise the debt ceiling in response to Democrats using the reconciliation process to push through a piece of legislation through the Senate. Speaking on the matter Mitch McConnell, the Senate Minority Leader, said, “Democrats want to build a partisan future without our input, so democrats will not get bipartisan facilitators for their purely partisan spending binge.” Without raising the debt limit, neither bill can be funded. Democrats argue that Republicans are being short sighted on the issue, citing that the debt-limit increase is needed to pay for trillions of dollars in debt generated by both parties, including under President Trump. They also note that they supported raising the debt ceiling when Trump was in office in order to prevent the government from defaulting on its obligations.
To summarise, (mostly) everyone supports the Infrastructure Bill. Many Democrats, especially within its progressive ranks, support the Reconciliation Bill. The supporters of the Reconciliation Bill have threatened to tank the Infrastructure Bill if the former is not passed first. And the Republicans, who vehemently oppose the Reconciliation Bill have threatened to vote against raising the debt ceiling which would catalyse the demise of both bills and have a profound effect on the US economy.
All of this spells trouble for Biden who has net-negative approval ratings and for the Democratic party, who risk losing their numerical superiority in both the House and Senate after next year’s midterm elections. Biden, whose popularity took a massive hit due to Covid and the US withdrawal from Afghanistan, desperately needs a win with only 39% of voters approving of his handling of the economy according to a USA Today poll. For the Democrats, this may be one of their last chances to pass major legislation before losing control of either chamber. They also have limited opportunities to use the reconciliation process, having used it once already in March of this year to pass the Covid stimulus bill. Typically, reconciliation can only be used 2-3 times per year.
Since they lost their majority in both chambers in 2012, Democrats complained that Republicans blocked them from passing any meaningful legislation. They accused the party of steamrolling any attempts at progress and vowed to make major changes once they were in power. Today, Democrats occupy the Presidency and have a majority in the House and Senate. However, they only have a potentially limited window to make the type of meaningful changes that they promised. Fractures within the party are the only thing stopping them and if they fail, they will only have themselves to blame.
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