Manchin Slams Democratic Plan as ‘Fiscal Insanity’

Manchin Slams Democratic Plan as ‘Fiscal Insanity’

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Plus, Biden and Pelosi scramble for a deal
Wednesday, September 29, 2021
The Fisc

Good Wednesday evening! As this email hits your inbox, Congress has about 29 hours to avert a government shutdown.

Lawmakers appear poised to get that done, with the Senate working to finalize a deal on a short-term funding extension that can be passed on Thursday and then, if all goes according to plan, quickly approved by the House. That would clear only one of the four issues lawmakers are wrestling with, though. The paths to addressing the debt limit and resolve Democratic infighting over infrastructure and a budget reconciliation bill remain far less certain. Here’s what you need to know.

Biden, Pelosi Struggle to Break Dem Stalemate; Manchin Slams Spending Plan as 'Fiscal Insanity'

President Joe Biden and congressional Democratic leaders scrambled Wednesday to try to resolve an intraparty standoff that threatens to delay or derail a $1 trillion bipartisan infrastructure bill and a larger package focused on expanding access to health care, bolstering the social safety net and combating climate change.

Biden canceled a planned trip to Chicago Wednesday so he could stay in the capital and continue efforts to broker a compromise between progressives and centrists divided over the two tentpole pieces of legislation.

Biden met with House Speaker Nancy Pelosi (D-CA) and Senate Majority Leader Chuck Schumer (D-NY) at the White House Wednesday afternoon following a series of meetings Tuesday with Sens. Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ), who oppose both the size of the social spending package and key provisions in it. Progressives, meanwhile, are still vowing they’ll withhold their support for the infrastructure bill, fearing that if it passes, centrists will scuttle any chance of passing the second package.

Progressives apparently have good reason to be concerned about that larger bill, which would require the backing of all 50 Senate Democrats in order to pass using the special budget reconciliation process the party wants to use to bypass a Republican filibuster.

Despite repeated pressure from Democratic lawmakers, Manchin and Sinema reportedly have yet to specify what they would support in a reconciliation bill. “During a private meeting with the president, Sinema made clear she’s still not on board with the party’s $3.5 trillion social spending plan and is hesitant to engage on some specifics until the bipartisan infrastructure package passes the House,” Politico reports, citing a person who spoke with her.

White House Press Secretary Jen Psaki would not tell reporters Wednesday whether the two senators have provided a topline number that they would accept for the price tag of the budget reconciliation package. Manchin has previously indicated he could back $1.5 trillion. Sinema remains more of an enigma, though she continues to engage in talks with the White House. Psaki said Wednesday that the White House believes the Arizona senator does support passing a reconciliation package this year.

For the moment, that all leaves Democrats going in circles, as Politico summed up: “To pass the House, progressives are demanding that the much larger reconciliation bill must be finished. To finish the reconciliation bill, Biden needs to cut a deal with Sen. Kyrsten Sinema … . To get a deal with Sinema, she has previously said, the bipartisan infrastructure bill must pass the House on Thursday.”

Pelosi said Wednesday that the legislative text of the reconciliation package must be done before the House takes up the infrastructure bill. “That won't happen,” Manchin quickly responded.

Manchin says spending trillions more is ‘fiscal insanity’: The West Virginia senator issued a statement Wednesday evening reiterating many of his objections to the budget reconciliation package. “I can’t support $3.5 trillion more in spending when we have already spent $5.4 trillion since last March,” he said, without including a number that he could support. “What I have made clear to the President and Democratic leaders is that spending trillions more on new and expanded government programs, when we can’t even pay for the essential social programs, like Social Security and Medicare, is the definition of fiscal insanity.”

Manchin also said he was concerned that spending trillions more would spur inflation that could weaken the recovery from the pandemic.

“While I am hopeful that common ground can be found that would result in another historic investment in our nation, I cannot – and will not – support trillions in spending or an all or nothing approach that ignores the brutal fiscal reality our nation faces,” Machine added. “There is a better way and I believe we can find it if we are willing to continue to negotiate in good faith.”

The bottom line: Biden and Pelosi appear to have a couple of options, neither of which is good. They could press ahead with Thursday’s planned infrastructure vote, daring progressives to follow through on their threat and tank the bill, as is likely to happen. Or they could delay the vote and anger moderates, potentially complicating negotiations even further. “If the vote were to fail tomorrow or be delayed, there would be a significant breach in trust that would slow the momentum in moving forward in delivering the Biden agenda,” said centrist Rep. Stephanie Murphy (D-FL).

Pelosi has made clear she won’t bring a bill to a vote without knowing it will pass, meaning delay — and more Democratic infighting — is the likeliest outcome. But check back tomorrow!

House Votes to Suspend Debt Ceiling

With one eye on a rapidly shrinking calendar, Democrats in the House on Wednesday approved a stand-alone bill that would suspend the federal debt ceiling until December 16, 2022.

The bill passed 219-212, but it faces an unavoidable problem: Republicans have vowed not to support any effort to deal with the debt ceiling, making it virtually impossible to pass a bill without resorting to the filibuster-proof reconciliation process.

Earlier this week, Republicans in the Senate blocked two efforts to vote on a separate bill that would suspend the debt limit, amplifying concerns that Congress could push the economy into a potentially catastrophic crisis as soon as mid-October.

“We’re just asking Republicans to get out of the way,” Schumer pleaded on the Senate floor.

Internal resistance: Before the vote, Pelosi faced resistance from some within her caucus who threatened to block the new bill due to concerns about the political damage they could suffer if they supported it. To win their support, Pelosi agreed to allow a vote on a bill that would create something like a fiscal report card for the U.S.

In a letter to Democratic lawmakers ahead of the vote, Pelosi said “the House plans to move forward to honor its responsibility to protect the American economy and American families from the catastrophe of a default by passing legislation to suspend the debt limit.”

Pelosi also made it clear who she blames for the last-minute legislative scramble: “We cannot and will not allow Republicans’ extremism and utter lack of concern for families to drive our economy into the ground,” she wrote.

Few Americans Pay the Estate Tax – and the Number Has Been Shrinking

Democrats want wealthy households to pay more taxes to help fund their effort to expand the social safety net, and one proposal in Congress calls for lowering the threshold for the estate tax to $5 million.

That prompted CNBC’s Greg Iacurci to take a look at how many Americans currently pay the estate tax. And the answer is: very few.

According to IRS data reviewed by Iacurci, just 0.2% of U.S. adults who died between 2011 to 2016 paid the estate tax. That’s well below the historical norm of 1% to 2%.

The falling rate is due in large part to the increase in the threshold for the estate tax. Twenty years ago, the threshold was $1 million, rising to $3.5 million in 2009 and then to $5 million in 2010. In 2017, Republicans more than doubled the threshold to the current levels of $11.7 million for single people and $23.4 million for couples. Above those levels of wealth, the estate tax of 40% applies.

In raw numbers, just 2,570 returns owed estate tax in 2019, Iacurci reports. The money owed was substantial, though, totaling $13.2 billion.

According to the Joint Committee on Taxation, the Democratic plan to lower the estate tax threshold to $5 million won’t significantly increase the percentage of people who owe the tax, bumping the share up to 0.3% or 0.4%, but it will raise a lot of money, bringing in about $52 billion over the next five years.

Mind the GRAT: A new report from ProPublica highlights a method some ultrawealthy households use to avoid paying estate taxes altogether.

“The estate tax can be easily avoided by exploiting a loophole unwittingly created by Congress three decades ago,” ProPublica’s researchers write. “By using special trusts, a rarefied group of Americans has taken advantage of this loophole, reducing government revenues and fueling inequality.”

The special trusts are called grantor retained annuity trusts, or GRATs, and they’ve been used by more than half of the country’s 100 wealthiest individuals, ProPublica reports.

Here’s how they work: “A typical GRAT entails putting assets, like stocks, in a trust that ultimately benefits a person’s heirs. The trust pays back an amount equal to what the trust’s creator put in plus a modest amount of interest. But any gains on the investments above that amount flow to the heirs free of gift or estate taxes.”

The GRAT structure has helped the likes of Michael Bloomberg, Oprah Winfrey and Charles Koch ensure that their families and in some cases friends receive millions from their estates, tax-free.

“I don’t blame the taxpayers who are doing it,” Daniel Hemel, a professor at the University of Chicago Law School, told ProPublica. “Congress has virtually invited them to do it. I blame Congress for creating the monster and then failing to stop the monster once it became clear how much of the tax base the GRAT monster would eat up.”

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