Sen. Joe Manchin III’s concern that Democrats’ $2.2 trillion climate and safety net package uses artificial sunsets to lower the cost of policies his party intends to make permanent may be overblown considering future political obstacles to extending the most expensive temporary measures.
The trifecta of power that Democrats currently hold with House and Senate majorities and President Joe Biden in the White House does not come along often. The party’s last trifecta was a decade ago, during the first two years of the Obama administration. That means Democrats are less likely after the 2022 midterms to be in a position to extend the temporary spending and tax policies they’re now trying to pass through the filibuster-proof budget reconciliation process, assuming continued Republican opposition.
Democrats would need to repeat their trifecta and expand their current narrow majorities to get big things done in the next several years. But they acknowledge they may struggle to motivate their base, let alone swing voters, in future elections if they don’t pass the “Build Back Better” package, which would deliver on key promises like combating climate change and lowering the costs of health care, child care and other services for families.
“We have to show that there’s something different about having Democrats in office,” Congressional Progressive Caucus Chairwoman Pramila Jayapal, D-Wash., said on a Dec. 20 press call.
Manchin said he opposes Democrats’ current budget bill. But the West Virginia Democrat has left the door open to supporting a more narrow version that stretches new spending programs or tax expenditures through the full 10-year budget window.
Absent a deal on tailored legislation that Manchin and all 50 Senate Democratic caucus members can support, Senate Majority Leader Charles E. Schumer said he will have his chamber vote on a somewhat altered version of the $2.2 trillion House-passed bill that Senate committees released last month.
Republicans and Manchin have argued that Democrats are using sunsets to hide the true cost of the measure, even though Democratic leaders say they would offset the costs of future extensions.
“You can continue a lot of the tax changes we’ve made to pay for it,” Sen. Amy Klobuchar, D-Minn., told CNN in December. “There’s other tax changes out there that we haven’t even touched like, for instance, bringing up the corporate tax rate to where it was before the Trump presidency.”
It’s true that Democrats left plenty of tax increases they could use to pay for future policy extensions out of this package, but Sen. Kyrsten Sinema, D-Ariz., rejected many of those, including an increase in the 21% corporate rate. Sinema’s opposition wouldn’t matter if Democrats could expand their majorities and hold the White House in upcoming elections, but that’s a tough bar to meet.
Here’s a look at some of the fiscal cliffs the bill creates and potential political challenges to averting them:
2022
The most expensive policy that Democrats want to continue is the enhanced child tax credit that sends families earning up to $150,000 monthly advanced payments of $250 per child, or $300 per child under age 6. The enhancement to the $2,000 base child credit was enacted in the March coronavirus relief law and expires at the end of 2021.
Democrats’ reconciliation package would extend the enhanced credit through 2022 but make it permanently refundable so families without tax liabilities can claim the full credit. That would cost $185 billion, while making the full expansion permanent would cost $1.6 trillion over 10 years, according to the Joint Committee on Taxation.
The package would also extend the expanded earned income tax credit through 2022. The one-year extension would cost $13 billion, compared with $135 billion over the decade to make it permanent.
Manchin is opposed to the short-term extensions despite retaining leverage to prevent them from becoming permanent policy.
If Democrats extended the credits through 2022, they would need to take action again next year, likely in the lame-duck session after the midterm elections, to prevent them from permanently expiring. They could use reconciliation again to prevent the need for GOP votes, but they would still need Manchin’s support with the current 50-50 Senate in effect until January 2023.
Manchin’s opposition to the child tax credit as currently designed — he wants to impose work requirements and cut off access for higher-income earners, for example — would give him leverage to extract such changes.
Some Republicans, including Senate Minority Leader Mitch McConnell, have said they’re open to discussing the enhanced child tax credit. But Democrats are skeptical about the prospects of a bipartisan deal.
“They always say let’s have bipartisanship, and then they have one or two Republican senators that gets us to 53, 54, and that’s not really real,” Rep. Ro Khanna, D-Calif., said on MSNBC on Dec. 22.
2025
The package would extend through 2025 more generous health insurance subsidies for low- and middle-income families that Democrats expanded in their 2021 coronavirus relief law.
The Congressional Budget Office estimates those extensions would cost $131 billion while making the expanded subsidies permanent would cost $400 billion over the upcoming decade.
Biden may not be in the White House to push for extensions of the expanded subsidies if he loses reelection or doesn’t run. If a Republican wins the White House in 2024, they are likely to have other policy ideas for lowering health care costs.
The 2024 election will also determine which party controls the House and Senate, and the presidential race will almost certainly have down-ballot impacts. But the Senate map in 2024 favors Republicans since they have only 10 incumbents up for reelection that year, compared with 21 Democrats and two independents who caucus with them who will be in cycle.
The one upside for Democrats is that 2025 is also the year several individual tax cuts that Republicans enacted in 2017 are set to expire. They could use those as leverage for extending the health care subsidies, creating an opportunity for a bipartisan “grand bargain.”
One contentious provision of the 2017 tax law that expires in 2025 is the $10,000 cap on the state and local tax deduction. Democrats are hoping to provide relief from the cap in their reconciliation package but have yet to settle on an approach that is acceptable to lawmakers from high-tax states who prefer to repeal the cap and those who want to continue limiting the deduction for the wealthiest taxpayers.
Most proposals Democrats have floated would extend some form of the cap past 2025 so it won’t be a problem again until later in the decade.
2027
Two big programs in the current package are set to expire in 2027. One is a universal prekindergarten program for 3- and 4-year-olds. The other is an entitlement that would subsidize child care for other preschool-age children, capping out-of-pocket costs at 7 percent of income for families earning up to 250 percent of their state’s median income.
The legislation phases both programs in over three years, then provides for three years of full funding before they would sunset. While the federal government would provide the majority of the funding, states would have to put up some matching funds and administer the programs.
The CBO estimates that the programs funded through 2027 will cost the federal government $381 billion while making them permanent would cost $752 billion over the 10-year budget window.
The political will to extend the universal pre-K and child care programs will depend in large part on how effective they become in expanding access to affordable care.
Republicans are concerned that Democrats’ child care subsidies will raise costs for families that don’t qualify and put religious-based care providers out of business since they wouldn’t be accepted into the program.
Some states may opt not to participate in either or both of the pre-K and child care programs, creating a coverage gap, similar to the 2010 Medicaid expansion, that would make extending the programs without significant changes more difficult.
It’s hard to predict which parties will control the House and Senate in 2027 since it’s three election cycles away. Still, there’s a greater opportunity for a bipartisan compromise on extending the pre-K and child care programs than most others in Democrats’ package.
“There is a group of Republicans trying to find a way to help people with child care without driving costs up,” Sen. Lindsey Graham, R-S.C., said on Fox News on Dec. 21.
