Budget bill clears as Democrats seek to head off midterm losses

House vote on reconciliation bill caps off more than a year of promises, negotiations, false starts and surprises

Speaker Nancy Pelosi and House Majority Leader Steny H. Hoyer hold up the budget reconciliation bill during the enrollment ceremony in the Capitol on Friday. President Joe Biden signed the legislation into law on Tuesday. (Bill Clark/CQ Roll Call)
Speaker Nancy Pelosi and House Majority Leader Steny H. Hoyer hold up the budget reconciliation bill during the enrollment ceremony in the Capitol on Friday. President Joe Biden signed the legislation into law on Tuesday. (Bill Clark/CQ Roll Call)
Posted August 12, 2022 at 5:41pm

The House on Friday cleared a climate, health and tax package salvaging key parts of Democrats’ domestic agenda for President Joe Biden’s signature. 

The vote was 220-207, with all Democrats and zero Republicans supporting the bill. That follows a 51-50 vote in the Senate Sunday on the filibuster-proof budget reconciliation bill, and the measure now heads to Biden’s desk with the support of every elected Democrat holding federal office.

That level of unanimity was unthinkable until late last month, when Sen. Joe Manchin III, D-W.Va., struck a surprise deal with Senate Majority Leader Charles E. Schumer. After some final tweaks to appease the Senate's other centrist holdout, Kyrsten Sinema, D-Ariz., party leaders had all but secured a win that had proved elusive for the better part of a year.

Key provisions include a wide array of climate and energy spending programs and tax credits, corporate tax increases, money for the IRS to step up tax collection, prescription drug price negotiation and an extension of more generous health insurance subsidies.

Numerous priorities from the original House measure were dropped, including an expanded child tax credit, paid family and medical leave, universal pre-kindergarten, child care for kids under 6, higher education assistance, affordable housing, immigration relief and expansions of Medicaid and Medicare.

While House Democrats lamented those losses, they put their frustration aside to praise what ultimately was included.

"Today we are celebrating action on climate. We are celebrating action on prescription drugs. We are celebrating action on corporations finally paying their fair share," Congressional Progressive Caucus Chair Pramila Jayapal, D-Wash., said at a news conference before the vote Friday.

Rep. Jared Golden, D-Maine, who voted against the more expansive bill last year, supported this version.

Golden explained his decision in a lengthy Medium post, saying the downsized package, unlike prior iterations he opposed, is "fiscally responsible" and focuses on "making hard choices, doing a few things well, and investing in the long-term health of our economy and the predictability of the policies that help shape it."

Golden is considered among the most vulnerable House Democrats in November; Inside Elections with Nathan L. Gonzales rates his race a "Toss-up."

The Congressional Budget Office said it won't have a full cost estimate ready for a few weeks. But the revised measure appears to spend less than a quarter of the $2.2 trillion budget reconciliation package the House passed last November and contains about one-third of its offsets, leaving extra for deficit reduction.

Combined with last year's bipartisan infrastructure law that represents the other pillar of Biden's "Build Back Better" agenda, Democrats will have delivered on roughly $1 trillion out of the $4 trillion Biden sought in early 2021 when he rolled out his twin plans.

The climate, health care and tax bill is expected to cut deficits by close to $300 billion over a decade, which would more than offset the infrastructure law's estimated $256 billion in added red ink. That negligible overall budgetary impact is in keeping with Biden's earlier promises.

Prescription drug victory

Many Democrats touted the bill’s provisions to allow Medicare to negotiate directly with pharmaceutical companies to lower the costs of certain prescription drugs that lack generic competition and cap seniors’ out-of-pocket Medicare costs at $2,000 and insulin copays at $35 per month. 

Democrats won back the House in 2018 in part by campaigning on lowering prescription drug costs, and they will be eager to tout that achievement as they attempt to hold onto their narrow majority in November.

Speaker Nancy Pelosi told reporters this week the budget package “probably could be helpful” to Democrats in the midterms. “I do know it will be helpful to America’s working families, and that’s our purpose,” she said.

Republicans argue the opposite, saying the package’s spending and tax increases will further drive up inflation and increase prices for already struggling families. 

"The reality is we are facing an economic recession and continue to battle 40-year-high inflation," Rep. Andrew Clyde, R-Ga., said during debate. "So as millions of Americans struggle to buy groceries, fill up their gas tanks, afford rent and pay utility bills, Democrats are ramming through their tax and spend bill that will only make life worse."

The CBO and other independent analysts have said the measure likely won't curb inflation, despite supporters' "Inflation Reduction Act" nickname for the bill.

Overcoming differences

Groups of Democrats tried to take advantage of their narrow House majority to force their priorities.

House progressives held up the bipartisan infrastructure measure last year as leverage to ensure centrist Democrats like Manchin and Sinema would cooperate on reconciliation. House moderates balked, temporarily withholding their support for the budget resolution needed to set up the reconciliation vehicle until Pelosi agreed to schedule the infrastructure vote for September. 

That vote was delayed and the Democratic factions sparred for months before compromising and clearing the infrastructure bill, with House moderates promising they would back the reconciliation measure as long as the CBO confirmed the measure wouldn't grow the deficit. Some progressives regretted giving up the infrastructure bill leverage after Manchin announced his opposition to the House-passed bill in December.  

In the end, House obstacles to passing the downsized package largely melted away. A handful of Democrats from high-tax states demanded relief from the $10,000 cap on deducting state and local taxes, a creation of Republicans’ 2017 tax law. 

New Jersey Reps. Josh Gottheimer and Mikie Sherrill and New York Rep. Tom Suozzi took the toughest line and repeatedly promised “no SALT, no deal.” They and others secured a provision in the House-passed bill last November to lift the cap to $80,000. But SALT cap foes couldn't overcome Senate objections — including Manchin, who said relief from the cap would favor "elites" — and the provision didn't make it into the final bill.

The New Jersey and New York Democrats voted for it anyway; Suozzi said the measure wouldn't affect individual income taxes, and Gottheimer and Sherrill said that on the whole the bill would provide financial relief for their constituents.

That trio, along with Democrats Tom Malinowski of New Jersey and Katie Porter of California, sent a letter before the vote Friday to Ways and Means Chairman Richard E. Neal, D-Mass., urging him to lift the SALT cap as part of a year-end tax package.

They weren’t the only Democrats to back the bill even though it left out what they’d championed. Reps. Lou Correa of California, Adriano Espaillat of New York and Jesús “Chuy” García of Illinois said last year they’d oppose any package without a path to citizenship for millions of undocumented immigrants.

The Senate parliamentarian rejected three proposals to provide immigration relief as having a “merely incidental” impact on spending or revenues, in violation of budget rules. The final bill does not include any legalization measures.

Progressives also had to stomach fossil fuel provisions Manchin added to get the clean energy incentives they sought.

Tax changes

The tax increases in Democrats’ bill ended up far from where they began in the Ways and Means Committee.

Sinema squeezed out much of that panel’s initial tax plan, namely raising the top corporate rate and individual income and capital gains tax rates for wealthier households, as Biden also proposed.

She also successfully nixed a long-sought change that would tax investment fund managers' share of their clients' gains, known as carried interest, at the higher ordinary income rate. That tax briefly reappeared after Manchin's deal with Schumer but fell out again in the final bargaining with Sinema.

The revised bill’s major tax — a 15 percent minimum tax based on the biggest corporations’ income reported to shareholders — originated in Senate negotiations and was included in the House-passed bill last year. Sinema later successfully shrank the minimum tax's impact on manufacturers and private equity investors, marking another win for fund managers.

To make up for lost revenue, Senate Democrats revived a 1 percent tax on corporate stock buybacks that emerged in talks last year and passed the House in November. Senators also added a two-year extension, through 2028, of limits on business losses that their owners can claim to offset other income; the House had earlier sought a permanent extension.

Combined, the final bill would increase business taxes by nearly $300 billion over a decade, on top of roughly $200 billion in added revenue collections from businesses and individuals stemming from new IRS enforcement funding in the bill.

Neal played a role in shaping the bill's tax, health care and climate provisions from the start. Before the vote Friday, he told reporters the experience reminded him of how difficult legislating is, especially with a "tiny" majority. 

"I think that this is a substantive policy achievement," Neal said. "Joe Biden, I think, stayed with it, which most of us who have long legislative careers do. We think that taking the long view is important, and you carve out victories as you can get them."