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Democrats ponder big challenge in their $3.5 trillion reconciliation bill: How to pay for it

“It’s not going to be at 3.5 [trillion], I can assure you,” Senator Joe Manchin, a West Virginia Democrat, said Sunday of the cost of a reconciliation spending bill.
“It’s not going to be at 3.5 [trillion], I can assure you,” Senator Joe Manchin, a West Virginia Democrat, said Sunday of the cost of a reconciliation spending bill.Stefani Reynolds/Bloomberg

WASHINGTON — How do you raise $3.5 trillion?

Congressional Democrats are working feverishly to figure that out as they draft a bill that would dramatically expand the social safety net while addressing climate change and other top priorities of President Biden. The effort to pass the legislation faces a precarious path with slim party majorities and pressure from moderates including West Virginia Senator Joe Manchin to significantly scale back the eye-popping price tag over the next decade.

“It’s not going to be at 3.5 [trillion], I can assure you,” Manchin said Sunday on CNN’s “State of the Union” of the final figure.

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While Democrats are still wrangling over exactly how much money to spend and what to spend it on, an even trickier task lies ahead: Figuring out how to pay for what would be one of the most expensive bills ever enacted by Congress.

After borrowing nearly $6 trillion to fight the pandemic and bolster the economy since 2020, congressional leaders and White House officials have said they want to pay for most if not all of the so-called reconciliation bill through a combination of tax increases, other revenue-raisers, and government cost savings.

“I’d like to have it totally paid for,” House Speaker Nancy Pelosi said late last month. “We’ll see what is possible.”

Even though interest rates are extremely low, analysts said eliminating or at least reducing borrowing to pay for the legislation is important to avoid significantly swelling a national debt that now stands at $28.5 trillion, double what it was just a decade ago. In addition, with concerns about rising prices in recent months, offsetting the bill’s spending would lower the risk it would fuel inflation in the coming years by injecting large amounts of money into the economy when it may have recovered fully from the pandemic recession.

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“In theory, you want to make sure that your fiscal policy is paid for when you’re in a world of full employment,” said Mark Zandi, chief economist at economic research and consulting firm Moody’s Analytics. “That’s easy to say. That’s hard to execute on.”

Manchin cited inflation and the soaring national debt when he recently called for a “strategic pause” on the rush to pass the $3.5 trillion budget reconciliation package this month. On Sunday, he suggested his maximum is about $1.5 trillion. Fellow Senate moderate Kyrsten Sinema of Arizona also has said she won’t support a $3.5 trillion bill.

Even if a $3.5 trillion bill were fully paid for, Manchin said, he’s worried the size of the tax increases needed would hurt the nation’s global competitiveness.

Other moderates have said their support is contingent on a bill that is fully paid for.

Facing unanimous Republican opposition to the reconciliation bill, Democrats can’t afford to lose any votes in the evenly divided Senate. But progressive Democrats are pushing to keep the legislation’s price tag at $3.5 trillion, which they said already is a compromise from the trillions more they wanted to spend.

“It’s a negotiation. He’s leveraging low, we’re leveraging higher,” said Representative Jimmy Gomez of California, who added he’d support borrowing to pay some of the bill’s costs. “We might not get everything we want, but I think we’re going to get what we need.”

Still, even some progressives agree the legislation should be fully paid for after all the borrowing to fight the pandemic and to offset the revenue loss from the 2017 Republican tax cuts.

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“Whatever it takes to fund these programs, we need to come up with the revenues to do it,” said Representative Lloyd Doggett of Texas.

The legislation is part of a complicated, two-step dance Democrats are trying to execute to enact a cornerstone of Biden’s domestic agenda.

One piece is a bipartisan bill the Senate approved last month to spend $1 trillion -- about half in new spending -- over five years on conventional infrastructure such as highways, bridges, and airports. Supporters said the bill is almost entirely paid for without raising taxes largely by redirecting money from other programs, although the nonpartisan Congressional Budget Office disputed some of those accounting moves and said the bill would add about $256 billion to the deficit over a decade.

The second piece is legislation that focuses on human infrastructure, including child care, health care, and education, while also tackling climate change. Among other elements, the bill still being drafted aims to provide paid family and sick leave, expanded Medicare benefits like dental and vision coverage, free preschool for 3- and 4-year old children, tuition-free community college, as well as billions of dollars worth of tax breaks for families and renewable energy.

“Paying for it is very desirable but it ought not to be a veto as well,” Representative Richard Neal, the Springfield Democrat who chairs the House Ways and Means Committee, told the Globe Sunday. “There are a lot of very important things here.”

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Because of Republican opposition to the proposals, Democrats are trying to enact them through a process called budget reconciliation that allows a bill to pass with only a simple majority in both chambers of Congress.

But with no votes to spare in the Senate and only three in the House, Democrats must tread carefully in crafting the bill. Neal and Senate Finance Committee Chairman Ron Wyden of Oregon each are working on a package of revenue raisers expected to include increasing taxes paid by corporations and the wealthy while bolstering the Internal Revenue Service as part of a crackdown on tax avoidance.

Neal released his revenue-raising plan Monday, which reportedly would generate as much as $2.9 trillion. The proposal includes increasing the tax rate for the highest earners and on capital gains, imposing an additional tax on people earning more than $5 million a year and hiking the rate for corporations with annual income of more than $5 million.

Neal said Sunday that additional revenue proposals will be coming in consultation with the Senate and he predicted the bill would pass if it is close to being fully paid for.

“We’re going to get this over the goal line,” Neal said.

But corporate lobbyists already are fighting the expected tax increases, which carry political risks of their own for Democrats. Republicans are likely to use any proposed tax increases as fodder for next year’s midterm elections, though polls show increasing taxes on the wealthy, which Democrats have focused on, is popular.

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Still, despite the goal of offsetting all the bill’s cost, the reconciliation instructions authorize Congress to borrow up to $1.75 trillion to pay for it.

“They’ve certainly given themselves a very wide back door to wiggle out of,” warned Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget.

Douglas Holtz-Eakin, the former director of the Congressional Budget Office, said Neal and Wyden could find ways to raise $3.5 trillion over a decade fairly easily. But politics complicates the math.

“It’s not hard for you to do. It’s not hard for me to do,” said Holtz-Eakin, president of the conservative-leaning American Action Forum think tank. “But it’s hard for us to do and find 50 Democrats who agree with our choices in the Senate and alienate only four in the House. That’s the hard part.”

The challenge was clear on Thursday when Representative Stephanie Murphy, a moderate Democrat from Florida, announced she wouldn’t vote for any of the bill’s provisions moving through the Ways and Means Committee until she knows how they would be funded.

“I cannot assess them if I don’t know how we’re paying for them,” Murphy said. “I don’t think we can afford to do everything.”



Jim Puzzanghera can be reached at jim.puzzanghera@globe.com. Follow him on Twitter: @JimPuzzanghera.