Build Back Better… Blocked

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Build Back Better… Blocked

In the UK the ruling Conservative party hold 361 of the 650 seats in the House of Commons. This whopping majority ensures massive scope to enact their agenda. However, over the pond in the USA, Joe Biden’s Democratic party, and his Presidency, face much tougher opposition.

Over the course of 2021 we discussed the great importance attached to fiscal spending to stimulate growth, and in particular Joe Biden’s Infrastructure Bill. We discussed the fact that concessions might be necessary (and they were) to appease both parties. We also focused on the fact that a fiscal package focused on infrastructure spending made great sense when the economy needed a boost.

This week the Biden administration are having to facing up to making more concession but this time it is their $1.75tn social spending bill, coined the ‘Build Back Better bill’ that is in deep trouble. The Build Back Better bill covers issues in the US that are highly contentious, mainly social ones. They include offering child tax credits, introducing more affordable housing and increased access to healthcare. The bill has many facets and not all the spending priorities will survive if the bill is to pass. It needs to happen in a different form for it to pass.

Diagram 1: Areas Covered in Build Back Better Bill

Source: The White House, 2021

Unfortunately for Joe Biden the voting arithmetic doesn’t afford him much room to manoeuvre. The US Senate is split 50/50 between elected Democrats and Republicans. When divided equally along party lines, it is the responsibility of Vice President Kamala Harris, a Democrat, to decide. While this offers some hope, a bill must have 100% approval of all Democrats to make the cut. And as we saw recently with Boris Johnson a party leader cannot always rely on those from his own side!

Lack of progress on the bill has been a huge blow to Biden’s spending plans. Frustratingly for him this is because a little-known senator from Virginia, Joe Manchin, also a Democrat, opposes his $1.75tn bill. He has singlehandedly blocked it from being passed through the Senate.

According to reports, Manchin raised various concerns, saying passing the bill will add $29tn to the National Debt and will need higher taxes at a point when Americans are already facing inflationary pressure. Biden hit back at this criticism saying the bill will be funded from raising taxes on large corporations, not individuals, and will help those most in need. However, Manchin, and opposing Republicans, are very strongly against raising taxes on businesses as they say it will be bad for the economy and jobs. They are looking to extract significant concessions otherwise the bill is dead.

As with all political dramas there is an element of intrigue behind what is going on. There are, rumours about Manchin’s motives. He allegedly had constructive conversations with Biden and then straight afterwards, when interviewed on the well-known conservative news outlet FOX, stated he could not vote for the bill. He said he could not return to his home state of West Virginia and explain it to his constituents if he did.

The about turn by Manchin came as a ‘great surprise’ to White House officials following what they described as a ‘constructive meeting’ with him. Accusations that Manchin is being opportunistic and that he has used this as a platform to raise his profile abound. If correct, his plan seems to have worked. Prior to the bill he was a virtual unknown, whereas now he is headlining on all major international news channels.

Why is non-passage of this bill significant? Well first it is a test of leadership and second it matters when it comes to the Democrats re-election in the November 2022 Mid-Terms. At this election the entire House of Representatives and 34/100 seats in the Senate are contested. This will play out in the minds of voters, with questions likely to be raised about (in)effective government.

At this point Biden’s “Build Back Better” bill will not pass through the US Senate in its entirety. Political commentators envisage a more modest bill, with some core aspects retained. Manchin seems to be on board with areas such as healthcare and clean energy provisions. However, his main objections are with expanding child tax credits, electric vehicle tax relief and lifting a cap on deductions for state and local taxes. These areas now look vulnerable and could be scrapped.

Concluding Thoughts

The Build Back Better Bill demonstrates how one individual can put the brakes on multi-trillion-dollar plans that impact a country of over 300 million people. Voters and history will judge Manchin.

Biden’s long term spending plans, and his social agenda legacy, are in trouble. Ironically, history shows government lacking in power to pass legislation is okay, especially if it means the country’s finances are not placed in jeopardy. Not passing such a massive spending bill may prove fortuitous.

It will be very interesting over the coming months and years to see how the Biden administration will approach new legislation. They may need to water down bills to appease more centrist colleagues on whose votes they depend on.

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