Top Democratic leaders and tax writers have narrowed a “menu of options” on how to pay for their multitrillion-dollar budget reconciliation package that takes a controversial inheritance tax proposal off the table but leaves many others with shaky support.
Senate Majority Leader Charles E. Schumer made a brief appearance at Speaker Nancy Pelosi’s weekly news conference Thursday morning with Treasury Secretary Janet L. Yellen to announce they “reached agreement on a framework” on how to pay for sweeping social spending measure that will fund new programs on paid leave, child care, climate and much more.
It quickly became clear that what Schumer, D-N.Y., described as a "menu of options," and which Pelosi, D-Calif., deemed "a giant step forward," was not yet the major breakthrough needed to resolve longstanding disputes among moderate and progressive Democrats on the size and scope of the sweeping tax and spending package.
Rank-and-file members mostly learned about the existence of a framework agreement from reporters and thus had no details on its contents. "I'm almost as anxious to get that information as you are," Sen. Mark Warner, D-Va., a Finance panel member, told reporters.
The “agreement” also turned out to be only half-baked as Ways and Means Chairman Richard E. Neal, D-Mass., and Senate Finance Chair Ron Wyden, D-Ore., still had issues to work through in refining the menu options, let alone picking what from the menu will be used in the final package.
“I'm not going to get into the specifics, but we added a few things that people would consider,” Schumer said. “There are a couple of things that Neal and Wyden didn't agree on, and they're going to try to put their heads together and see.”
Senate Minority Leader Mitch McConnell poked fun at the “menu” description, calling it “a surprisingly honest metaphor for how they see this.”
“Democrats dine on all the socialism and inflation they can eat and taxpayers get stuck with the check,” the Kentucky Republican tweeted.
Ways and Means bill
Neal told reporters that every revenue measure his committee approved last week is still in play. That includes provisions raising taxes on tobacco products and allowing government negotiation of prescription drug prices to produce Medicare savings that some members have raised concerns about.
Neal said the exact prescription drug pricing negotiation language was still under discussion. It could be as broad as a House-passed bill from the last Congress that would make hundreds of prescription drugs subject to price negotiation for Medicare and the private market, which the Congressional Budget Office estimated would reduce deficits by roughly $500 billion, or a narrower version that would save less money.
"That's a little bit more difficult at the moment, but we're still talking about it," Neal said.
The Energy and Commerce Committee initially included the broader drug pricing provisions, but the panel deadlocked on that subtitle after three Democrats voted "no" — California's Scott Peters, New York's Kathleen Rice and Oregon's Kurt Schrader.
Peters said Thursday that Democratic leaders have not talked to him about drug pricing since the markup. "Which I think is unfortunate, and wouldn't be my approach if I was trying to get the votes," he said.
In total, the Ways and Means Committee package represents roughly $2.9 trillion worth of offsets, including $2.2 trillion in tax increases with the remainder coming from prescription drug spending cuts, although the latter hadn't been officially scored yet by the CBO.
The menu of options includes other proposals that Wyden had floated but Neal did not include in his bill, likely bringing the total revenue available closer to the $3.5 trillion topline leadership prefers.
Sen. Joe Manchin III, D-W.Va., and other moderates have been skeptical that taxes could rise by more than $2 trillion and not affect U.S. economic competitiveness.
Inheritance tax out
One proposal that appears to be off the table in a concession to moderates, particularly those from farm states, is the repeal of the stepped-up basis that erases capital gains on assets like stock and property when they’re passed down at death.
President Joe Biden and Wyden have both proposed making wealthy heirs liable for taxes on the full appreciation of their inheritances, in some cases many decades earlier, but with some exemptions. Neal didn't include stepped-up basis language in the package his panel approved last week.
Biden wanted to start taxing gains on inherited assets above $1 million, or $2.5 million per couple factoring in the current tax exclusion for up to $500,000 in gains on a primary residence. Wyden proposed a higher exemption of $5 million per person, also with the residency exclusion, plus an additional $25 million for family farms.
Wyden declined to comment on the removal of the stepped-up basis proposal from the menu of options or otherwise divulge details of the pact. But he said overall the revenue raisers go “right to the heart of what we need in terms of tax fairness in America.”
Neal said that Wyden’s other proposal for getting at untaxed wealth, a plan called mark-to-market that would annually tax wealthy individuals' stock holdings, is neither officially on nor off the menu.
"Staffs are talking about it but there was no accord on any of that today," he said.
Neal said he and Wyden did reach "sort of a tentative agreement" on requiring banks to report to the IRS annual gross inflows and outflows of accounts.
Biden had proposed setting the threshold that would trigger such reporting at $600. Neal, who did not include any bank reporting in his bill, said earlier this week he would want to see a higher threshold. Wyden has also signaled flexibility on the threshold. It’s unclear if their tentative agreement sets a specific level.
A border tax on carbon-intensive imports, which was not in the Ways and Means bill but was on a list of revenue raisers Wyden was considering, is also “in the mix,” Neal said.
The border carbon tax and drug pricing provisions will likely need to be vetted by the Senate parliamentarian for compliance with the Byrd rule that requires provisions in reconciliation to have more than a “merely incidental” budgetary impact.
Price tag unsettled
The announcement of a preliminary agreement, described only in vague terms, came one day after Biden held talks at the White House with warring factions of the Democratic caucus in an effort to broker a deal. Moderates have balked at a $3.5 trillion price tag, while progressives have been unwilling to vote for a bipartisan infrastructure bill unless the reconciliation package is passed in tandem.
Schumer and Pelosi said the final price tag is not settled, and thus the pay-for menu is flexible to provide enough offsets for whatever total Democrats negotiate. Pelosi declined to say whether the topline would come down from $3.5 trillion, as moderates have demanded.
"It's hardly conclusory, but it was a good step of progress," Schumer said.
Jennifer Shutt and David Lerman contributed to this report.