Democrats confront ‘Rubik’s cube on steroids’

Democrats are facing tough choices as they grapple with how to make good on their promise to deliver a sweeping social spending bill crucial to President Biden’s agenda. 

The high-profile balancing act is testing Democrats’ razor-thin majorities and putting a spotlight on long-dormant divisions. 

“This is a little bit like a Rubik’s cube on steroids. … It’s complicated,” said Sen. Mark Warner (D-Va.) about the state of play.  

Here are some of the toughest hurdles for Democrats:

How big should the bill be?

Where Democrats land on the top-line figure is a decision that will affect everything else in the bill, forcing lawmakers to either scale back their ideas or drop some entirely. 

Progressives, including Senate Budget Committee Chairman Bernie Sanders (I-Vt.) and Rep. Pramila Jayapal (D-Wash.), argue the bill must stand at $3.5 trillion, which they view as a compromise from their initial $6 trillion goal. 

Moderate Sens. Kyrsten Sinema (D-Ariz.) and Joe Manchin (D-W.Va.) say it has to be smaller and that they won’t support a $3.5 trillion bill. 

Some members of leadership are opening the door to going lower, with Sen. Dick Durbin (D-Ill.) acknowledging that $3.5 trillion “may not be the end point.”

Medicare vs. Medicaid

Democrats are also debating how much to focus on Medicare versus boosting Medicaid and shoring up the Affordable Care Act. 

The House bill creates a new federal health insurance program to provide Medicaid coverage in the 12 states that didn’t expand it under former President Obama’s health care law. 

Senate Democrats haven’t yet decided whether to take the House approach amid pushback within the caucus about potentially rewarding states that didn’t expand Medicaid earlier. Another, potentially faster, option under discussion would be to use the already established ObamaCare insurance markets to get more people covered. 

Democrats are also split over how to provide more vision, dental and hearing coverage through Medicare. For example, the House bill would start the dental benefits under Medicare in 2028, something Sanders believes is too slow. 

Drug pricing

A rebellion from three House Democrats against a prescription drug plan is foreshadowing bigger headaches awaiting Biden and Democratic leadership on the key provision. 

Democratic leaders are vowing that the final bill will allow the government to negotiate with drug companies to lower the prices for prescription medications. The plan is crucial because the savings expected to be generated could help cover the costs of other pieces of the spending bill’s health care provisions. 

But House moderates have warned that the drug pricing plan has little chance in the 50-50 Senate, where Democrats face no room for error, and instead have pitched a narrower bill. The broader plan, which is backed by House leadership, has already raised hackles among some Senate Democrats, and the pharmaceutical industry is now ramping up its attacks, which would build pressure on lawmakers. 

Climate

The House Energy and Commerce Committee included a Clean Electricity Payment Program, which incentivizes transitioning to clean energy, in its portion of the spending bill, and Democratic senators who support the policy have been working behind the scenes to ensure it gets into their version of the bill. 

But they are facing a stumbling block in the form of Manchin, who chairs the Senate Energy and Natural Resources Committee and is tasked with drafting some of the clean energy and climate provisions. 

Manchin, during an interview with CNN, argued that the transition to clean energy “is happening” and so it “makes no sense” to use taxpayer funding. Manchin has been cagey about if he’ll offer his own version of the program, telling reporters that he wasn’t “going to negotiate this in the press.” 

Corporate tax rate

Democrats need to come to an agreement on how high to go with taxes, including where to set the corporate tax rate after Republicans used their 2017 bill to drop it from 35 percent to 21 percent. 

Biden, as part of his plan, pitched a 28 percent corporate tax rate. That’s not going to happen, but the question is how much lower will congressional Democrats go and how much revenue will it cost them.

House Democrats are pitching a 26.5 percent corporate tax rate, but that’s in flux in the Senate. Manchin and Warner, whose votes Senate Majority Leader Charles Schumer (D-N.Y.) needs, have both signaled that they want the rate to be at 25 percent. 

Inheritance tax plan

House Democrats didn’t include Biden’s proposal to tax capital gains at death, leaving in place the current rule that requires heirs to only pay a capital gains tax when they sell and only on gains that have occurred after they inherited. 

House Ways and Means Committee Chairman Richard Neal (D-Mass.) suggested to reporters that including it could have cost the larger spending bill votes leadership couldn’t afford to lose, saying that decision was “about getting to 218.”

Progressives have pushed for its inclusion, with Sen. Elizabeth Warren (D-Mass.) saying it should “be a part of” the plan, but the idea could face backlash from farm-state Democrats. Democrats are looking at alternatives, including requiring inheritors to pay the total capital gain since the original purchase instead of since they inherited. 

SALT

The House Ways and Means Committee didn’t include changes to the Trump-era cap on the state and local tax deduction, which has hit taxpayers in certain parts of New York, New Jersey and California particularly hard. 

Progressives are wary of an outright repeal, arguing that it would benefit the wealthiest households. But Democrats in both the House and Senate are warning that it will be hard to vote for the larger package without some changes. 

Democrats are vowing that they will include “meaningful” changes. Though they haven’t yet figured out where to land, one idea being floated is a two-year repeal of the cap. 

Income requirements 

Democrats are pitching a broad swath of new benefits under their $3.5 trillion spending plan, including universal pre-K and free community college. 

The House bill doesn’t include income-based restrictions on those benefits. But Manchin is floating using means-based testing to limit who would qualify for some of the programs, arguing that it would help target the aid to the families that need it most and control cost. 

The issue splits Democrats — for example, Sen. Tammy Baldwin (D-Wis.) said she’s not in favor of means testing for the community college plan, while Sen. Tim Kaine (D-Va.) said he was. Even once Democrats make the big decision whether to include the income caps, they’ll still need to haggle over where to set the ceilings. 

Manchin is also floating placing work requirements on a beefed-up child tax credit that was included for one year in the coronavirus relief bill but that Democrats want to extend under the spending bill. 

The temporary expansion boosted the tax credit from $2,000 to $3,600 per child under 6 and to $3,000 for older children. House Democrats have floated extending it through 2025. 

But Manchin, during an interview with CNN, argued that Democrats should “make sure that we’re getting it to the right people” and that “people should make some effort.”