The Washington PostDemocracy Dies in Darkness

Democrats race to revive economic package as inflation spikes

With inflation high and a possible recession looming, party lawmakers are trying anew to resurrect talks with their lone holdout, Sen. Joe Manchin III of West Virginia

Sen. Joe Manchin III (D-W.Va.) departs after a vote on Capitol Hill on May 19. (Jabin Botsford/The Washington Post)

With inflation on the rise and the threat of a recession looming, congressional Democrats are scrambling to revive their long-stalled economic spending package, hoping to deliver relief to Americans whose finances have soured during months of political bickering.

When Democrats last tried to advance the party’s $2 trillion initiative in December, hoping to overhaul the nation’s health-care, education, climate and tax laws, the economy seemed to be booming: Stocks traded high, gas prices were low and lawmakers saw an opening to advance the measure then known as the Build Back Better Act.

More than six months later, however, the economy has shifted considerably. Along with Russia’s invasion of Ukraine and another resurgence of the coronavirus, the nation faces soaring costs for housing, gasoline, groceries and other goods, all made worse by the specter of another downturn. The economic peril has fueled new urgency on Capitol Hill, where Democrats hope to resolve their differences, re-craft their agenda and deliver before fall on at least some of the promises they made in the last election.

“It’s essential to do because it responds to pocketbook concerns right now — financial concerns right now, it moves to cut costs right now — and it also lays the foundation for these smarter approaches for the future,” said Sen. Ron Wyden (D-Ore.), the leader of the tax-focused Senate Finance Committee.

How the White House lost Joe Manchin, and its plan to transform America

The chief obstacle remains Sen. Joe Manchin III (D-W.Va.), a moderate whose opposition last year scuttled President Biden’s agenda. Manchin has huddled privately and repeatedly with Senate Majority Leader Charles E. Schumer (D-N.Y.) in recent weeks, as Democrats labor anew to secure his must-have vote on a scaled-back bill that they hope to bring to the floor in July.

Manchin has remained steadfast in his belief that the U.S. government should spend less, and raise more, than others in his party prefer. Increasingly, Democrats believe they will end up with a package far smaller in scope than they first envisioned — one focused on lowering prescription drug prices and combating climate change, with spending financed through changes to tax laws that also cut the deficit.

But many of the key details are still unresolved, generating fresh discomfort among lawmakers. In a sign of the lingering schisms, a broadly supported attempt to lower the price of health insurance by extending subsidies under the Affordable Care Act remains at risk of falling out of the package entirely. The loss of those tax credits could result in premium increases for millions of Americans next year.

The delays and doubts have only compounded Democrats’ frustrations after they had to abandon plans to lessen the price of housing, make child care more affordable and push the development of energy sources that can be alternatives to expensive gas — ideas, they say, that might have made a difference with a potential recession on the horizon.

“You know how strongly I felt about Build Back Better as we passed it. … None of that has changed,” said Rep. Pramila Jayapal (D-Wash.), the leader of the left-leaning Congressional Progressive Caucus. “What I also know is that we desperately need to deliver on some big policies immediately.

“Much to my chagrin, we have one person that didn’t want to vote for the deal that had been agreed to, but we need that one person,” she added. “We need to pass the maximum we can pass that’s going to make a real difference for people.”

For Democrats, the economic challenges are immense as a slow-motion crisis comes into view. This year, inflation has reached a nearly half-century high, and gas prices in particular have soared due to geopolitical instability. The Dow Jones industrial average, meanwhile, has lost more than 5,000 points since the start of the year, part of a broad market slump that has hit even the once-burgeoning tech industry hard.

Hoping to cool a hot economy, the Federal Reserve has responded aggressively in recent weeks with steep interest rate increases. That may eventually bring prices down, but only after making mortgages and other borrowing more expensive for Americans. Higher rates could also slow a hiring boom brought about by trillions of dollars in federal stimulus spending over the past two years, some under Biden’s watch.

The situation didn’t seem as dire last year, when Democrats last tried to advance their agenda. Many in the party saw their proposed spending as a way to shore up the economy — offering financial help to Americans already grappling with high costs in the wake of the pandemic. But Manchin argued then that the economic package would add to the debt and worsen inflation. Although the House passed its $2 trillion version of the measure in November, the Senate ultimately concluded the year without even holding a vote.

Since then, Democrats have insisted they are not giving up, even as time begins to run out. They have about three months to broker the sort of compromise that has eluded them for more than a year; otherwise, they may lose the ability to adopt the bill under a special legislative tactic that allows them to bypass a GOP filibuster in the Senate.

To speed up their efforts, the party’s lawmakers are already huddling with the Senate’s parliamentarian, hoping to ensure their final package works within the confines of the process known as reconciliation, according to two people familiar with the matter, who spoke on the condition of anonymity to describe the talks.

Speaking to reporters Wednesday, Schumer stressed after his latest meeting with Manchin that they are having “very good and productive discussions, but there are still some issues that have to be resolved.”

Sam Runyon, a spokesman for Manchin, added in a statement that the senator “continues to engage in respectful conversations about the best way to move our country forward but is still seriously concerned about harmful inflation taxes hurting Americans and our nation’s lack of energy security.”

Democrats scramble to resurrect ‘chunks’ of $2 trillion spending plan backed by Biden

In the meantime, though, the stakes in their deliberations have grown exponentially higher. The party now faces an even tougher balancing act as it looks to whittle down a roughly $2 trillion package in a way that lowers costs, satisfies Manchin’s whims and shores up the economy — without making inflation worse.

“Anything that Congress does that adds to inflation will lead to more interest rate increases,” said Jason Furman, an economist at Harvard University who previously advised President Barack Obama. “Anything Congress does to take the pressure off inflation will consequently lead the Fed not to raise interest rates as much. This is much more of an interaction between fiscal and monetary policy than one would have expected a year ago.”

Some of the ideas Democrats initially proposed might have offered more of a direct, immediate financial reprieve from rising prices — including, for example, restoring expanded monthly tax credit payments to families with children. The pandemic-era program expired last year partly because Manchin objected to renewing it, which economists say has cut deeply into families’ finances and raised the risks of child poverty.

“If you expanded the child tax credit the way we did … wouldn’t that help families pay for child care, for prescription drugs, for school supplies for kids?” asked Rep. Rosa L. DeLauro (D-Conn.), a leading advocate for the tax credit and the chairwoman of the House Appropriations Committee.

Democrats had also proposed more than $166 billion to construct new homes and help low-income Americans pay their rents and mortgages in the original Build Back Better Act. That would have marked the largest-ever federal investment in housing affordability, clinching what might have been a key policy before rental prices reached record highs in some major cities.

“There’s no part of the country that has enough affordable homes for families to buy or rent,” said Sen. Sherrod Brown (D-Ohio), the leader of the Senate Banking Committee, which helped craft the provision. “If we want to address the costs that are weighing families down, we have to tackle the shortage of quality, affordable homes.”

But those ideas long ago fell out of the discussions on Capitol Hill, frustrating many Democrats, who have come to acknowledge their final bill may offer only limited relief for families — no free prekindergarten, no rebates for child care, no aid for elder care, no paid family and medical leave. While DeLauro, Brown and others pledged to continue pushing, party leaders broadly have resigned themselves to securing whatever deal they can with Manchin.

“I think there’s great support still for some of the key elements of the package, especially some of the elements that reduce costs for consumers,” said Sen. Chris Van Hollen (D-Md.), a top lawmaker on the chamber’s appropriations panel. But Van Hollen acknowledged that Congress and the economy are “not where we were months ago, and getting something important now is better than getting nothing.”

Fed chair acknowledges that higher interest rates could cause a recession

Democrats do still believe they can secure prescription drug pricing revisions, empowering the government to negotiate some costs on behalf of Medicare beneficiaries. Wyden, who helped craft the provision, said that alone would help seniors who are “getting clobbered at the pharmacy counter just as they’re getting clobbered at the gas station.” An earlier version of the proposal also would have saved the government about $160 billion, according to estimates at the time.

But some other health-care initiatives remain in doubt. That includes an existing federal program that lowers insurance costs for millions of Americans who purchase coverage through national health exchanges. These expanded subsidies under the Affordable Care Act are set to expire at the end of the year. Yet Democrats so far have not been able to strike a deal with Manchin to preserve them, according to three people familiar with the matter who spoke on the condition of anonymity to describe the talks.

The sources cited Manchin’s broader cost concerns as a key reason for the trouble, especially since he has rejected past Democratic attempts to proffer short-term extensions in a bid to save money. Manchin publicly has expressed mixed views on the idea, at times citing the need to restrict any benefits to lower-income Americans.

Without action, however, roughly 13 million Americans could see higher premiums in 2023. The prospect prompted some Democrats this week to redouble their calls for action, with House Majority Leader Steny H. Hoyer (D-Md.) telling reporters on a call Thursday that the provision “must be included” in any Senate deal.

“Inflation is causing great shock at the pump and in the grocery store,” Hoyer added. “We must not let the cost of health care go up as well when we have the power to stop that from happening.”