Senate Democrats and President Biden are coalescing around a new $3.5 trillion “human infrastructure” framework to enact health, education, childcare, and climate priorities as part of President Biden’s American Jobs Plan and American Families Plan. The emerging reconciliation package complements a second vehicle called the Bipartisan Infrastructure Framework (BIF), also developing in the Senate, which will focus on traditional transportation priorities. Yesterday, early details of the new human infrastructure deal emerged, but more change is guaranteed.
Democrats are turning to the filibuster-proof “budget reconciliation” process to pass this new human infrastructure plan, just as they did to pass with this spring’s American Rescue Plan. The $3.5 trillion dollar figure appears designed to strike a middle ground between progressives like Senate Budget Chairman Bernie Sanders (I-VT), who wanted upwards of $6 trillion in spending, and moderate Democrats, who wanted less.
However, the new plan’s ambitions are already busting the limits of the filibuster-proof reconciliation process: under Senate rules and precedent from the non-partisan Senate Parliamentarian, budget reconciliation can only deal with revenue and spending. Several policy proposals outlined yesterday, such as inclusion of the pro-union PRO Act, immigration reform, and creating a clean electricity mandate, don’t fit within these rules and may wind up on the cutting room floor. By charging ahead with the plan anyway, congressional Democrats will test the limits of reconciliation while appealing to voters watching at home.
What’s in the proposal? Many businesses are watching for how Democrats will find trillions of dollars to fund new investments. Yesterday, Democrats outlined several tax and revenue-raisers for their human infrastructure package:
- Tax reform focusing on corporate, international rules, and high-income individuals
- Increased enforcement of tax law
- Health savings: reduced spending on prescription drugs and repealing the “Trump Rebate Rule”
- A new methane reduction and “polluter import fees” (a carbon tariff, or border adjustment) to offset climate investments and drive down emissions
- The Administration has already ruled out any tax increases for families earning less than $400,000 annually. Yesterday, Democrats added that their proposal would ban any tax increases on small businesses and family farms
Then there’s the investments and spending. MBS obtained a summary of the Democrats’ emerging plan, which we have included with our comments below. Some of the proposals are painfully vague, such as how long these proposed changes would last. Budget resolution typically covers ten years, but these changes could last for a longer or shorter time depending on how they’re drafted.
Workforce and Family Support
- Senate Budget Committee Chairman Bernie Sanders is determined to include at least portions of the Protecting the Right to Organize (PRO) Act (H.R. 842/S. 420), a sweeping bill to protect labor organizing activities, in a reconciliation proposal. The PRO Act in its entirety would not meet the rules for inclusion in reconciliation, but its supporters may try to add portions that would bring revenue into the government, such as enforcement fees, to try to get around this rule
- Extending the American Rescue Plan’s expansions of the Child Tax Credit, Earned Income Tax Credit, and Child and Dependent Care Tax Credits
- Paid family and medical leave, which would likely be modeled on the Biden White House’s American Families Plan’s proposal to require employers to provide 12 weeks of paid family and medical leave through a new federally funded program phased in over ten years
- Nutrition Assistance
- Affordable Housing
Immigration: In a win for progressives, the proposal is said to include a pathway to citizenship for “Dreamers” (undocumented immigrants brought to the U.S. as children) as well as immigrants with Temporary Protected Status (TPS) and farmworkers
Climate: The human infrastructure package supports the White House’s goals to reach 80% clean electricity and 50% economy-wide carbon emissions by 2030. Elements include:
- A “Clean Energy Standard,” a new mandate to reduce carbon and greenhouse gas emissions
- Clean energy and vehicle tax incentives
- Establishment of a Civilian Climate Corps
- “Climate Smart Agriculture,” and wildfire prevention
- Weatherization and electrification of buildings
- A clean energy accelerator
Health and Home Care:
- Medicare expansion to cover dental, hearing, and vision, but not to lower the age of eligibility as some progressives had wanted
- Home and community-based services expansion
- Extend the Affordable Care Act expansion as enacted in the American Rescue Plan earlier this year
- Closing the Medicaid “coverage gap” in Republican-controlled states that refused to expand coverage under the Affordable Care Act
- Reduced patient spending on prescription drugs
Small Business and Manufacturing:
- Housing investments
- Innovation and research and development upgrades
- Small business support
- American manufacturing and supply chains funding
- Investment in workers and communities
Education and Child Care: Most of the proposal’s major platforms align with President Biden’s American Families Plan.
- Universal pre-kindergarten for 3 and 4-year olds
- “High quality and affordable” child care
- Support for community colleges, Historically Black Colleges and Universities (HBCUs) and Minority-Serving Institutions (MSIs), and Pell Grants
What’s next? The immediate next step is for the Senate and House Budget Committees to work together to draft identical budget resolutions for each chamber. These Budget Committees then send instructions to other congressional committees with jurisdiction over issues covered in drafting a final reconciliation plan. The committees of jurisdiction will take primary responsibility for fleshing out many now-hazy proposals: for example, the Senate Finance and House Ways and Means Committees will have a heavy load developing tax and revenue provisions, plus the proposal’s paid leave and prescription drug savings plans. Others likely to get involved are the Senate Environment and Public Works and House Energy and Commerce Committees on climate provisions; Senate and House Judiciary on immigration; and Senate Health, Education, Labor, and Pensions plus House Education and Labor on workforce and education rules. Once these committees all develop their portions, they will be combined into a final reconciliation proposal that can be approved in both chambers of Congress with simple majority votes.
While the timing for this process is unclear, Democrats want to assemble a draft budget resolution by the end of the month, while committees may need longer, potentially August and into September, to develop their portions of a final reconciliation bill.
What to watch: The package faces a long road ahead, but an agreement on a top-line dollar amount represents an important step forward. There are a number of key dynamics to keep an eye on as this advances:
Vote count. There are 50 Democrats in the Senate, which leaves zero margin for error. Each and every Democrat must vote yes, or the effort will fail. This imbues each Democratic Senator with a lot of power to shape the bill – and the ability to hold out to get what they want.
Details. As the proposal gets built out, there will be jockeying on dollar amounts for each line item. Hold-outs could siphon money to pet projects in exchange for a yes vote.
Is it paid for? Several Democrats have said they won’t support trillions in new spending that is not offset by cuts or revenue-raisers elsewhere. Deciding if this proposal is “paid for” is more complex than one might think: the Democrats’ proposal will rely on “dynamic scoring,” anticipating that the new package will stimulate the economy and create more revenue over time. However, Democrats previously derided dynamic scoring when Trump-era Republicans relied on it to justify corporate tax cuts in 2017. Further, non-partisan authorities like the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) may undercut Democrats’ arguments.
What about the House? Democrats in the House are relying on counterparts in the Senate to develop both a traditional and human infrastructure proposal for a vote later this year. Speaker Nancy Pelosi (D-CA) backed the new proposal in a letter to House counterparts yesterday. Pelosi is considered among the best vote counters in the history of the House. She will need to muster all her skills to get a fractious caucus to yes. She can only afford to lose five votes, so her margin for error is similarly thin. If you have questions about this infrastructure announcement, please contact Lucia Alonzo at Lucia.Alonzo@michaelbest.com or Mike Dankler at mldankler@michaelbeststrategies.com.
