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Reconciliation talks yield slow progress

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Tax Hot Topics newsletter Democrats continued to make only incremental progress toward a compromise between moderates and progressives on reconciliation tax bill.

The goal for Democrats remains to bridge the divide between Sen. Joe Manchin's, D-W.V., $1.5 trillion top line and progressive Democrats’ $3.5 trillion proposal—but reconciliation negotiations took a back seat to the fight over the debt limit last week, as Republicans and Democrats averted immediate economic disaster after weeks of partisan deadlock and agreed to raise the nation’s credit limit by $480 billion. The increase was generally intended to align the next debt limit showdown with the expiration of government funding on Dec. 3, but it is possible that the debt limit would not actually be reached until sometime later in December or even January.

With the debt limit dilemma averted in the near-term, Democrats now turn their attention to ongoing negotiations regarding the $3.5 trillion reconciliation package. Democrats are hoping to agree on a top-line number before Oct. 31, when transportation funding is set to expire, and Congress will need to either pass the bipartisan infrastructure bill or extend transportation funding again. The October deadline is not set in stone, however, and negotiations on both the bipartisan infrastructure bill and the reconciliation package could easily spill into November and December. The Dec. 3 deadline for government funding—and possibly the debt limit—could provide another soft deadline to spur reconciliation negotiations.

Although there were no major break-through in negotiations, there was some notable progress:

  • President Joe Biden offered both moderates and progressives a topline cost range of $2 to $2.3 trillion and expressed openness to means testing some programs, as proposed by Manchin. The administration also reportedly pitched a $2.5 trillion package to the House.
  • Manchin seemed to open the door to a larger reconciliation package, responding to questions on Biden's proposals figures by saying: “I'm not ruling anything out.” Previously, Manchin had indicated he would not support a package in excess of $1.5 trillion.
  • Rep. Pramila Jayapal, D-Wash., Chair of the Congressional Progressive Caucus and key negotiator for progressive Democrats, indicated she could support a top-line number as low as $2.5 trillion (down from $3.5 trillion).
  • Other influential progressives like Rep. Alexandria Ocasio-Cortez, D-N.Y., floated the idea of cutting costs by funding the bill for five years instead of 10.

There were also several hiccups. Progressives wrote to Democratic leadership calling negotiations over whether to either fund only a small number of investments fully or make only shallow investments in a broad package a “false choice.” They expressed support for fully funding a broader package over a shorter timeline. Sen. Kyrsten Sinema, D-Ariz., also reportedly warned House Democrats on recent call that she would not vote on a reconciliation package until the bipartisan infrastructure bill is enacted.

Negotiations will continue in earnest in the coming weeks, though the White House signaled it is losing patience. An anonymous White House source recently told reported that the “time for negotiations is nearing an end” and that “soon it will be time for negotiations to conclude.”

Contact:
Dustin Stamper
Managing Director
Washington National Tax Office
T +1 202 861 4144

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