Divisions spill into full view as negotiations over Democrats’ $3.5 trillion plan heat up
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Divisions spill into full view as negotiations over Democrats’ $3.5 trillion plan heat up

Divisions over what should be included in Democrats’ massive reconciliation package are spilling into the open ahead of lawmakers’ return to Capitol Hill, previewing the monumental fight and signaling just how fragile the execution of President Joe Biden’s domestic agenda really is.

For months, Democrats have largely been able to paper over cracks within their ranks over what substantive policy should actually get included in their $3.5 trillion bill, but with September here and the end of recess right around the corner, expect serious policy splits to emerge front and center with fights over how large the package should be and when it should be voted on representing just a fraction of what must be worked out in the coming weeks.

The road ahead

At this point, it’s hard to fully capture or calibrate how much still needs to be worked out.

The House Ways and Means Committee unveiled their proposal Tuesday night ahead of what will be a marathon markup this week. But, it’s just one version, one committee and one chamber’s interpretation of how this legislation should look and how it should be paid for. The White House and Senate Democrats have their own ideas.

The days ahead will reveal not only ideological, but regional divisions within the Democratic caucus. Yes, $3.5 trillion is a lot of money and Democrats have a lot of room here to include proposals that they’ve been working on for decades to reimagine the social safety net, but that’s exactly the problem. They view this as a once in a lifetime package and individual members are keenly aware that with thin margins, every single member holds incredible sway over he bill’s passage, which means having sway to get their legacy items passed.

For some members, that’s the child tax credit. For others, it’s the State and Local tax deduction. For Sen. Bernie Sanders of Vermont, it’s expanding Medicare to cover vision and dental for the elderly. But that proposal is extremely expensive since and could block Democrats’ options on investing into the future to protect Obamacare. Those are the kinds of choices Democrats are grappling with right now. That’s before we’ve even gotten to prescription drug reforms, which members in New Jersey have already begun pitching a fight against, or tax increases that some members are trying to privately torpedo right now.

On a macro level, Democrats still haven’t settled on how much they have to spend. West Virginia Sen. Joe Manchin signaled he wants less than $3.5 trillion, but some Democrats have argued that he’s not taking into consideration how much of that could be paid for.

Manchin isn’t alone. Democratic Sen. Kyrsten Sinema of Arizona has also raised concerns about the topline and they aren’t the only Democrats in the Capitol building with concerns over spending.

A list of other sticking points:

  • Repealing the state and local tax deduction — or SALT — cap (even temporarily) costs billions and is viewed by many progressives as a tax cut for the wealthy. For a handful of members from high-tax states, however, this is becoming a hill they are willing to die on. You’ve heard the slogan from Rep. Tom Suozzi, a Democrat from New York, “no SALT, no deal.”
  • Expanding Medicare benefits to include dental and vision has been pushed by the Senate, but seen as very costly in the House.
  • How generous and robust to make the extension and expansion of the child tax credit. Permanency is roughly $1.9 trillion and it runs into serious issues in the Senate with the parliamentarian. But how much people can make to get it and how long to extend it are all ongoing fights right now.
  • How to include immigration in the reconciliation bill so it passes the Senate parliamentarian’s review.
  • Whether to overhaul the “step up in basis” laws related to taxes on inherited assets, which rural Democrats argue could put family farms at risk of being passed down. And, if you don’t change step up, the Congressional Budget Office score for raising capital gains tax doesn’t work. It’s a catch-22 for Democrats who view capital gains tax increase as incredibly important as a pay for.
  • How many points do you raise the corporate tax rate? Every point generates about $100 billion in pay-fors.
  • Whether to include prescription drug reforms. The pharmaceutical industry is fighting this hard, but it’s about $600 and $700 billion in pay-fors, which is A LOT to leave on the table.
  • Just generally how hard to go on tax increases? Yes, most Democrats feel comfortable with their messaging that they are just recalibrating things so the wealthy “pay their fair share,” but it’s hard to anticipate the backlash of raising taxes on people and powerful corporations until you get closer. Let’s see how some business-friendly and moderate Democrats feel about raising taxes on the individual rate and on other corporate entities in the next month.

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