Dems Plan ‘Deep Cuts’ in Biden Spending Plan

Dems Plan ‘Deep Cuts’ in Biden Spending Plan

Reuters/Jonathan Ernst

Democrats emerged from a series of meetings this week sounding increasingly optimistic that they can pull together a consensus framework for their multi-trillion-dollar social spending package — and possibly even do it by the end of the week.

“We’re getting closer to an agreement,” Senate Majority Leader Chuck Schumer (D-NY) said Wednesday. “We want to finalize a deal by the end of this week, but we all must keep moving together.”

President Joe Biden on Tuesday reportedly reiterated that he’s now looking for about $2 trillion in new spending over 10 years, though the final total may end up somewhat lower, between $1.75 trillion and $1.9 trillion. Biden also laid out the potential details of a scaled-back package in a meeting with progressives.

“There’s an anticipation of some deep cuts," said Sen. Ben Cardin (D-MD). “I think the major parts will remain in place, maybe not quite as strong, maybe not quite as long."

Yet while momentum may be building after weeks and weeks during which Democrats seemed to be clashing more than compromising, the White House and lawmakers still face plenty of tough decisions and inevitable pushback from factions trying to protect their priorities.

Here's what may be cut or scaled back in the Biden plan:

A four-year extension of the expanded child tax credit: Biden has touted the power of the tax credit to slash child poverty, and progressives had hoped to make the credit permanent. The House version of the Build Back Better plan included a four-year extension through 2025, but Biden reportedly suggested that the extension could be shortened to just one year or possibly two, a change that could cut the overall cost of the bill by as much as $400 billion.

A four-year extension may have made the tax credit an issue in the 2024 presidential election, Goldman Sachs analyst Alec Phillips said in a note to clients Wednesday. “A 1-2 year extension suggests that Democrats might instead be focused on making this more of an issue ahead of the midterm election, instead,” Phillips added. “It also raises the possibility that Democrats will propose a further extension next year in separate legislation once the reconciliation bill has been enacted.”

But some Democratic leaders are insisting on keeping the four-year extension that was included in the House version of the bill. "A one-year extension is a big mistake," Rep. Rosa DeLauro (D-CT), chair of the House Appropriations Committee, said. And Rep. Richard Neal (D-MA), chair of the House Ways and Means Committee, told reporters he’d keep fighting for what was in the House package. “I think family paid medical leave, I think that the child [tax] credit, I think the dependent care credit — and the Green Act, for sure — ought to remain in the final package as issued."

Two years of free community college: Biden hinted in remarks last week that his plan to make community college tuition-free might not make it into the final legislation, and Democratic lawmakers reportedly have confirmed that the plan is likely to be left aside for now, disappointing progressives. The free tuition plan included in House Democrats’ reconciliation package would have cost about $45.5 billion over five years, according to NPR.

Tax rate increases on corporations and the rich: Democrats have proposed raising the corporate tax rate from the 21% set by the 2017 Republican tax overhaul, with the House version of the Build Back Better Act lifting it to 26.5%. Democrats also have proposed restoring a top individual tax rate of 39.6% and raising the top capital gains rate from 23.8% to 28.8%.

Those proposals may all be in some jeopardy because Sen. Kyrsten Sinema (D-AZ) has reportedly made clear that she opposes raising those rates. “[H]er stance is now pushing Democrats to more seriously plan for a bill that doesn’t include those major revenue increases,” The Wall Street Journal reports. “Other planks of President Biden’s tax agenda, including tightening the net on U.S. companies’ foreign earnings and enhancing tax enforcement by the Internal Revenue Service, are still on the table, according to one of the people familiar with the matter.”

Scrapping the proposed rate increases would leave Democrats with a huge revenue hole to fill, even as they pare back their spending plans. “In the House bill, the corporate tax rate increase was projected to raise $540 billion over a decade while the tax rate increases on ordinary income and capital gains would raise nearly $300 billion,” the Journal notes.

12 weeks of paid leave: Lawmakers are reportedly looking at changing their program to offer four weeks of paid leave for people making under $100,000 or $150,000 a year.

Hundreds of billions in health care spending: Bloomberg reported that lawmakers are discussing limiting health care spending in the package to less than $250 billion, while CNN said that Biden told lawmakers that funding for homecare for the elderly and disabled would be reduced from $400 billion to less than $250 billion. “This would actually be an increase,” writes Phillips of Goldman Sachs, “as the House-proposed version includes $190bn for the new benefit (though advocates have said that the proposal might not work with less than $250bn). We would expect that neither report reflects what is likely to be in the final version of the bill, and that health spending is greater than $250bn overall but that the Medicaid home care portion is less than $250bn.”

A key clean energy program: As previously reported, the Clean Electricity Performance Program, a $150 billion plan to push energy producers toward wind, solar and nuclear power, is likely not going to make the cut. Democrats are looking at other ways to meet Biden’s goal of reducing emissions by 50% by the end of the decade and the administration is reportedly exploring administrative actions that could help reach their target.

The bottom line: Democrats’ budget reconciliation bill is likely to end up about half the size of the original $3.5 trillion proposal. The package is still far from final, and many details remain in flux. But Biden and lawmakers are operating with an increased sense of urgency and say they’re making progress.