Democrats Have Different Guesses on Infrastructure-Related Votes Ahead

Some Dems pushing additional spending, tax changes in BBB framework

Jim Wiesemeyer

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October 30, 2021 12:18 PM

Some Dems pushing additional spending, tax changes in BBB framework

Washington Focus

House and Senate chambers are both in session this week.

The House schedule is murky.

The Senate will continue work on Biden’s executive and judicial nominations. The chamber is set to vote Monday on confirming the nominations of Beth Robinson to be a judge for the U.S. Second Circuit Court of Appeals and Toby J. Heytens to be a judge for the Fourth Circuit. Senate Majority Leader Chuck Schumer (D-N.Y.) also filed for cloture, seeking to limit debate, on several other nominations.

Guessing continues on when House members will vote on infrastructure-related measures, after two failed attempts to get the chamber to vote. Most say after Democratic leaders are assured, this time, that the votes are there for passage.

Congressional Progressive Caucus leader Rep. Pramila Jayapal (D-Wash.) said she thought House Democrats could move forward with a vote on both pieces of legislation this coming week. Others say that appears too optimistic as legislative language is still being written and there appears to be some potential changes as noted below.

Sen. Tim Kaine (D-Va.) says a bipartisan infrastructure bill will pass Congress shortly, and the Senate will vote on President Biden’s economic agenda package later in November. “I think the infrastructure bill will go to Biden’s desk within the next 10 days, and I think the reconciliation bill will be voted on by the Senate right before the Thanksgiving recess,” Kaine said in an interview on Bloomberg TV.

Moderate Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-Ariz.) have yet to give an explicit endorsement of the proposal.

— BBB language: it’s not all over. Lawmakers are hoping to adjust the Build Back Better (BBB/budget reconciliation) framework released Thursday in areas that include health care, climate and paid family leave. But two centrist Democratic Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-Ariz.) have nixed some of those topics in the past. No Republicans are expected to vote for the package, meaning that every Senate Democrat and nearly every House Democrat will need to back it for it to pass.

Jayapal and some other progressives want more BBB spending. “We have endorsed the framework, I just want to be clear about that. We have also said that we would welcome anything that is additive that people are able to negotiate that will get 50 votes in the Senate,” said Rep. Jayapal. While she and her fellow progressives have been successful on twice blocking a vote on the bipartisan infrastructure (BIF) package, the liberals may not be as successful in running up the tab on the BBB.

Changes some Democrats want:

Health care: Including provisions to lower the cost of prescription drugs.
Health care: The current language left out establishing Medicare dental and vision benefits, though it does include creating a hearing benefit. Sen. Bernie Sanders (I-Vt.) said he still planned to push for dental and vision benefits. But adding those items could be a big challenge due to their cost.
Paid family leave: Democrats have been unsuccessful in trying to persuade Manchin to back off opposition to including a paid leave program.
Climate: The White House framework left out several climate provisions, including a fee on methane from oil and gas production, that some Democrats want in final legislation. The legislative text released by the House Rules Committee includes the methane fee and several other climate provisions that weren’t discussed in the framework, including a repeal of drilling in the Arctic National Wildlife Refuge and permanently banning new offshore oil and gas leasing in the Atlantic, Pacific and Eastern Gulf of Mexico. While the text is designed to be consistent with the White House framework, it’s unclear whether the legislation’s approach on a methane fee has support from key swing votes.
SALT tax exemption: Key Democratic lawmakers say they expect changes to the cap on the state and local tax (SALT) deduction will be included in the final version of the social-spending package, even though the topic was not included in the White House framework. House Ways and Means Committee Chairman Richard Neal (D-Mass.) said he expects the SALT deduction cap to be addressed in the final bill. But full repeal is not likely.
Immigration: Democrats are trying to figure out how to include immigration measures in the legislation after previous proposals ran into procedural problems in the Senate. The White House dedicated $100 billion to immigration measures that could be consistent with Senate procedure. If allowed, that would take the framework package spending to $1.85 trillion.

— USDA’s debt forgiveness program shows a huge expansion via BBB. A congressional contact notes: “Not only did they expand the debt forgiveness, but they also made it tax exempt.” And the $6 billion the White House and Democratic leaders show for the program is really $11 billion. Why? The current BBB legislative language rescinds the previous $5 billion for debt forgiveness currently held up in court battles and moves that funding to the proposed, expansion of the program which, according to the Senate Ag Committee release, says:

Debt relief: $6 billion for underserved farmers, ranchers and forest landowners in high-poverty areas.

Provides full and partial debt forgiveness on direct loans and offers loan modification services to USDA direct and guaranteed borrowers to keep their operations resilient and avoid economic disaster.
Gives additional assistance to historically underserved producers living in high-poverty areas to address credit barriers, land access and a lack of technical help.
Allows farmers or ranchers who experienced past discrimination in USDA credit programs to apply for additional assistance of up to $500,000.

Link to White House info on BBB.

Link to ag sector funding via the BBB, per Senate Ag Chairwoman Debbie Stabenow (D-Mich.)

— Current tax policy changes, and some potential new ones, in paying for BBB:

Surtax on millionaires ($230 billion). Taxpayers earning more than $10 million would pay a 5% annual surtax on adjusted gross income, or AGI, and those making more than $25 million would face an additional 3%. AGI includes wages, capital gains and dividends, and retirement-plan distributions, among other income. “This would indirectly increase the top tax rate to 45% for ordinary income, or 48.8% when including the net investment tax, and 28% for long-term capital gains, or 31.8% when including the net investment tax,” says Garrett Watson, a senior policy analyst at the Tax Foundation. The net investment tax, also known as the Medicare tax, is a 3.8% levy on investment gains.
Corporate minimum tax ($325 billion). Corporations that earn more than $1 billion in annual profits would face a 15% minimum tax rate. The Tax Foundation estimates this would affect 230 companies.
Tax on stock buybacks ($125 billion). A corporation buying back its own stock would pay a 1% surcharge on the transaction. That is unlikely to affect corporate buyback plans or affect stocks — unless it goes up.
Corporate foreign profits tax ($350 billion). Separate from the 15% minimum tax on U.S. profits, U.S. businesses would also pay 15% on foreign profits.
Medicare tax on active pass-through income ($250 billion). Owners of pass-through businesses such as S corporations and partnerships would be subject to a 3.8% Medicare tax passed under President Barack Obama. It would apply to active, not passive, incomes — typically salaries, as opposed to investments.
Limit on business loss deductions ($170 billion). Biden’s release on Thursday mentioned this provision, but without any detail. It may draw upon an earlier proposal from the House Ways and Means Committee to limit companies’ ability to carry forward losses for deductions to one year.
Gain from more IRS funding ($400 billion). The bill would expand the IRS’ compliance and enforcement operations. Each year, an estimated $400 billion goes unpaid. The new muscle would primarily be used to go after noncompliant taxpayers earning at least $400,000 a year.

What about potential new tax policy changes, especially if progressives get the votes needed for additional spending that did not make the framework accord? While changes to stepped-up basis, capital gains taxes and a billionaire tax are not likely, tax sources signal the following potential items to watch:

Reducing the estate-tax exemption. A proposal to reduce the estate-tax exemption from $11.7 million per person to around $6 million has been on the table since Biden’s campaign. The Tax Cuts and Jobs Act just about doubled the exemption in 2018 but scheduled it to return to its 2017 level with an inflation adjustment in 2026.
Changes to a wealth-transfer tool. Many lawmakers want to significantly limit the benefits of a grantor trust, one of the most popular wealth-transfer tools. A proposed change could make assets held within a grantor trust return to the estate or make transactions between individuals and their grantor trusts taxable events.

On the fiscal year 2022 spending front, the four principals of the Appropriations Committees are slated to meet to see if they can complete plans for passage of a FY 2022 omnibus appropriations bill by the expiry of the current Continuing Resolution (CR) which keeps gov’t doors open till Dec. 3. Lingering issues have some predicting another CR may be necessary.

On the hearing front, the House Agriculture Committee will discuss escalating supply chain problems, including worker shortages, backlogged ports, and other challenges.

President Joe Biden and many in his Cabinet, including USDA Sec. Tom Vilsack, are at the COP26 climate summit in Glasgow. Policy Updates during the week will have key developments from that confab.

Economic Reports for the Week

The main policy event will be the conclusion of the Federal Open Market Committee’s October monetary-policy meeting on Wednesday. Federal Reserve officials have strongly signaled that they will announce their plans to tapering the central bank’s $120 billion in monthly asset purchases at the meeting. Interest-rate increases are still far off. The economic data highlight will be Friday’s October jobs numbers. The Bureau of Labor Statistics is expected to report a gain of 435,000 nonfarm payrolls and an unchanged unemployment rate of 4.8%.

Monday, Nov. 1

Manufacturing PMI
Institute for Supply Management releases its Manufacturing Purchasing Managers Index for October. Expectations are for a 60.1 reading, slightly less than the September figure.
Census Bureau reports construction spending for September. Consensus estimate is for a 0.4% month-over-month increase to a seasonally adjusted annual rate of $1.59 trillion.

Tuesday, Nov. 2

FOMC meeting begins: The U.S. Federal Reserve’s Federal Open Market Committee (FOMC) starts its two-day meeting and is expected to keep the benchmark rates unchanged. The Fed is also expected to announce plans to phase out its $120 billion in monthly asset purchases by the middle of 2022.
Motor vehicle sales

Wednesday, Nov. 3

MBA Mortgage Applications
FOMC announcement: Fed policy makers are universally expected to announce a winding down of the central bank’s emergency stimulus program, its monthly purchases of $120 billion in Treasury securities and mortgage-backed securities. The Fed’s preferred gauge of inflation, the personal consumption expenditures index, showed an 4.4% annual increase for September, its fastest clip since 1991. The core PCE, excluding food and energy costs, rose 3.6% from a year ago, the fourth consecutive month it has done so.
Fed Chairman Jerome Powell press briefing
ADP releases its National Employment Report for October. Consensus estimate is for private-sector employment to gain 472,500 jobs, after a 568,000 rise in September.
Services PMI
ISM releases its Services PMI for October. Economists forecast a 61.5 reading, roughly even with the September number.
Factory orders

Thursday, Nov. 4

Jobless Claims
International trade
Productivity and costs
Fed Balance Sheet
Money Supply
The Bank of England also meets, and it is expected to raise interest rates. The move comes after rate hikes by South Korea, Norway and others.

Friday, Nov. 5

Bureau of Labor Statistics releases the jobs report for October. Economists forecast a 435,000 gain for nonfarm payrolls and for the unemployment rate to remain unchanged at 4.8%. In September, the economy added 194,000 jobs, about 300,000 short of estimates. Both August and September had large shortfalls compared with expectations, as the labor shortage has persisted longer than many economists expected, despite a near-record level of job openings.
Consumer Credit

Key USDA & international Ag & Energy Reports and Events

Here’s how Pro Farmer sizes up the recent ag market price action: “Front-month HRS wheat futures extended to their highest level in more than 10 years, while nearby HRW futures hit a seven-year high. SRW futures followed those markets higher but failed to clear the contract highs posted in August. December corn futures rallied to their highest price since mid-August, while the December 2022 contract posted a new high. Soybeans followed wheat and corn higher, though buying remained rather subdued. Cattle futures posted a new for-the-move high on the recovery from the early October low before erasing most of the gains late-week. The September lows in hog futures held for now, though attitudes remained highly pessimistic.” And what about cotton? To the moon!

Monday, Nov. 1

Ag reports and events:

Export Inspections
Crop Progress
Cotton System
Fats & Oils
Flour Milling
Grain Crushings
Malaysia’s October palm oil export data from AmSpec and SGS
Global Global cotton balance report from International Cotton Advisory Committee
Holiday: France, Spain, Italy, Venezuela, Algeria