The Road Less Traveled: Democrats’ Byzantine Plan to Pass Bipartisan Infrastructure AND Reconciliation Legislation

Commentary

June 27, 2021 — Two legislative roads diverged in a divided Congress, and the Biden administration is attempting to take the one less traveled by. The question is will it make all the difference?

With the White House’s endorsement of the bipartisan infrastructure framework this past week, President Biden and Congressional Democrats are attempting to simultaneously achieve a popular bipartisan legislative win while also passing a partisan tax increase and social spending package—all without dividing their party or losing GOP support for the former. If successful, Congress could eventually pass more than $8 trillion in future spending—not accounting for offsets—in President Biden’s first twelve months, allowing him to claim more major victories as president in his first year than many former presidents accomplish in their entire first term. Despite the availability of more simple options such as passing Democrats’ entire legislative agenda via reconciliation—or just eliminating the filibuster—the political requisites of moderate and institutional Senate Democrats are driving their divide and conquer strategy.

Between July 4 and the end of the federal fiscal year—September 30, 2021—Congress has about 30 working days planned to make significant progress on the bipartisan infrastructure framework and the FY22 reconciliation plan. Complicating matters is the fact that Congress will also need to work on an FY22 appropriations package to fund the government beyond September. We expect them to pass a short-term continuing resolution in late September, as has become customary for dealing with initial, annual government funding cliffs—and reauthorize the Surface Transportation Act, which also expires on September 30, 2021. Congress will also likely need to strike a deal on the debt ceiling after the debt limit is reinstated on August 1, adding yet another dimension to this summer’s political maelstrom.

Despite the political and logistical challenges facing the Biden administration’s maneuverings on infrastructure, we believe there is a path forward. We believe there is a 50% likelihood for both the bipartisan infrastructure bill and the FY22 reconciliation bill to pass in 2021. The order of operations matters here is most critical to follow in this calculation. For this plan to work, the Senate will likely need to pass a bipartisan infrastructure bill in late July or early August. If Democrats successfully tie the bipartisan infrastructure bill to the debt ceiling, the House may need to pass the bipartisan infrastructure deal before breaking for August recess. Otherwise, we expect the House will hold the bipartisan deal until September and try to pass it before the end of September to include it with the reauthorization of the Surface Transportation Act [the fewer votes, the better in federal policymaking].

Now on to the FY22 reconciliation bill. The House will likely pass its FY22 budget resolution in July, setting the stage for a $2 trillion to $3 trillion reconciliation package. The package will likely include language around infrastructure spending that overlaps with the bipartisan package, setting it up as a fallback for the entire Democratic agenda if the not bipartisan effort fails. The Senate however, cannot pass a FY22 budget resolution until after the bipartisan infrastructure bill passes, as GOP senators claim it undermines the good-faith of the bipartisan infrastructure package negotiations. Also, withholding support for the bipartisan package if the Senate moves too quickly on the FY22 reconciliation bill has the added benefit of potentially sinking the odds of either happening. Republican senators may withhold their support for the bipartisan framework anyways because of deficit concerns or increased IRS funding concerns while Democrats may vote against the package if they do not feel a vote on the FY22 reconciliation bill is sufficiently guaranteed, though a few progressive Democrats voting against the bipartisan framework may actually increase Senate GOP support for the bill.

Assuming the above, the Senate will pass a FY22 budget resolution in early August or September, after the bipartisan infrastructure bill passes the Senate. Democrats would then have the October to December time period to hammer out a deal on the FY22 reconciliation package. Though to create urgency and avoid a legislative hostage situation, Democrats could tie the FY22 reconciliation package to the debt ceiling, making it a must-pass bill by late September/early October, and likely shortening the August recess period [and with it the frequency of beach town fundraisers]. However, including the debt ceiling in the FY22 reconciliation package, would be a dangerous gamble, but worth taking because it results in urgency and fewer votes for Democrats. Why vote for raising ignoring the debt limit, raising taxes, and increasing the spending on social issues separately, if avoidable.

Still with us? The intricacy of the Democrats’ legislative plans notwithstanding, there are only four possible endpoints:

  1. Congress passes both a bipartisan infrastructure and an FY22 reconciliation bill (50% likelihood).
  2. Congress passes a bipartisan infrastructure bill, but Democrats fail to agree on an FY22 reconciliation bill (10% likelihood).
  3. Congress fails to pass a bipartisan infrastructure bill, but Democrats rally around an FY22 reconciliation package (15% likelihood).
  4. It all falls apart, and nothing happens (25% likelihood). The Senate spends too much time on the bipartisan bill, never reaches an agreement and in-fighting between Democrats on who is to blame sinks the FY22 reconciliation bill. Or there is some unforeseen crisis between now and year-end (specific member illness, national security issue, natural disaster, pandemic, etc.)

— Maxwell Reale, Managing Director, Healthcare and Tax Policy