On November 2, five House Democrats—enough to block the passage of the spending spree that the party hopes to enact via the budget reconciliation process—wrote to House Speaker Nancy Pelosi, D-California, urging her “to only bring a bill to the floor for which we have a strong level of confidence…will be ruled in order by the Senate parliamentarian and earn passage in the U.S. Senate.”
The lawmakers have justifiable reason for concern. Major pieces of the 2,135-page legislation face serious obstacles in the Senate. Both on policy and on process, senators in the upper chamber could rip the House bill to shreds, meaning more centrist House Democrats face the possibility of taking a political suicide vote soon.
To take but one obvious example: Pelosi reinserted into the bill family leave provisions that Sen. Joe Manchin, D-W.V., objects to. With the legislation needing all Democratic senators to vote for its passage, Manchin (and all of his Democratic colleagues, for that matter) effectively holds a veto over the bill and can have portions stricken if he wishes.
Pelosi’s tactic effectively dared Manchin to vote for an amendment stripping the family leave provisions out of the bill in the Senate. But in doing so, she raised the cost of the House bill from $1.75 trillion to $2 trillion or more. Raising the price tag makes the bill more politically difficult for moderates to defend—particularly if Manchin, Sen. Kyrsten Sinema (D-AZ), or others end up substantially cutting its price tag in the Senate after it passes the House.
State and Local Taxes
At the insistence of a vocal group of House Democrats from high-tax states like New York and New Jersey, Pelosi inserted into the bill provisions that would increase the amount of state and local taxes (SALT) that residents can deduct on their federal returns from $10,000 to $80,000. Unsurprisingly, the higher SALT cap would benefit wealthy Americans living in states with high property and income taxes.
But people like Sen. Bernie Sanders, I-Vermont, have criticized the House proposals as “giving more tax breaks to the very rich” and “beyond unacceptable.” The fact that a Tax Policy Center analysis released last week found that more millionaires would get a tax cut under the Biden legislation than a tax increase—due in large part to the SALT changes—will likely increase the pressure on senators to make substantial modifications to the House language.
Pelosi also reinserted provisions into the legislation giving foreign citizens who broke U.S. law to enter this country the ability to live in the U.S. for ten years. The language intended to broker a compromise between pro-amnesty House leftists, who claimed they would not vote for any bill that excluded an immigration fix, and moderates objecting to a path to citizenship.
But the provisions face an uphill battle in the Senate. In particular, the upper chamber’s Byrd rule, which governs the reconciliation procedures under which Democrats want to advance their party-line spending spree, prohibits the inclusion of “extraneous” material. And the parliamentarian has already opined that she considers Democrats’ first two immigration proposals “extraneous,” because they are policy changes that have a “merely incidental” budgetary impact.
The parliamentarian’s guidance should come as no surprise to individuals well versed in Senate procedure, as it has appeared obvious for months that immigration provisions had no place in a reconciliation bill. Yet Pelosi would keep banging Democrats’ heads against the proverbial wall, making her moderate Democrats vote for amnesty-type provisions that are dead on arrival in the Senate, just to appease the concerns of the party’s left wing.
Drug Price Controls
The linchpin of Democrats’ drug pricing package—so-called negotiation between the federal government and pharmaceutical companies—also faces obstacles. In response to concerns from moderate lawmakers, the revised package Democrats introduced limits negotiations to drugs on the market for at least a decade, and changes the maximum price the federal government can pay after negotiations.
But the “stick” intended to force companies to negotiate remains the same as in the version of the legislation House Democrats passed in 2019: An excise tax for companies refusing to negotiate that starts at 65 percent, rising to 95 percent after nine months. The tax’s punitive rate, coupled with a prohibition on companies deducting the tax as a business expense, meant that the Congressional Budget Office concluded drug companies would either decide to negotiate or pull their products from the American market entirely. As such, CBO said in December 2019 that it “did not estimate any increase in revenues from the excise tax.”
What Democrats might see as a feature—drug companies being compelled to accept government price controls—Senate procedure will view as a potentially fatal bug. One of the Byrd rule tests considers as extraneous any provision that “does not produce a change in outlays or revenues”—which CBO already said applies to the excise tax.
Striking the excise tax would cause further complications to Democrats’ drug negotiation plan. CBO has held for more than 15 years that, without a leverage point to punish recalcitrant companies—either an excise tax or the ability to exclude drugs whose manufacturers fail to grant discounts—drug negotiation provisions would have a “negligible effect on federal spending.” Eliminating the excise tax could nullify negotiation’s purported savings, causing the entire scheme to collapse like a proverbial house of cards as an impermissible regime to enact via the budget reconciliation process.
Other Challenges Ahead
More to the point of House moderates’ letter: Senate Republicans have yet to present these arguments to the chamber’s parliamentarian. On drug pricing and many other issues, they will have opportunities to strike provisions of the reconciliation bill, which could result in substantial changes to the legislation.
While Pelosi claimed in August that she would only bring to the House floor a bill “that will pass the Senate,” she has since reverted to her Obamacare mantra of forcing the House to pass the bill so that we can find out what is in it. Then again, after frog-marching her vulnerable members to a political suicide vote on a bill dead on arrival in the Senate, Pelosi might not want to know what’s in the bill even if House Democrats pass it.