Sen. Joe Manchin (D-WV) appears to have squashed Senate Democrats’ hopes of passing the Build Back Better Act this year.
Democrats had hoped to pass the bill — the centerpiece of President Joe Biden’s domestic agenda — before Christmas. But to do so they’d need Manchin’s vote, and he’s signaled he isn’t yet ready to provide it. Talks between Manchin and Biden this week haven’t gone well, per multiple reports, with Manchin insisting on major changes to the bill. So Democratic leaders reportedly now expect negotiations to spill into 2022.
The biggest sticking point continues to be the bill’s overall cost. Manchin has said for most of the year that he wants the bill to cost around $1.75 trillion over 10 years. Democrats’ initial proposal was far larger than that — around $3.5 trillion. They’ve since scaled it back closer to Manchin’s preferred number, but he’s not happy about the way they chose to do that.
Specifically, the Build Back Better Act devotes money to many new and expanded programs. Some are intended to help families with children (child care funding, pre-K expansion, and a continuation of the expanded child tax credit). Some are health care programs (like home-based care through Medicaid and hearing for seniors through Medicare). There’s a great deal of money for fighting climate change, primarily through tax credits for clean energy, as well.
So when Manchin demanded the bill’s overall spending be scaled back, Democrats had a choice about how to handle it. One option would have been dropping many of these programs and focusing on fewer things. The other — the option Democrats chose — was to keep trying to do almost everything, but for a shorter period of time. So rather than dropping one of, say, child care subsidies or universal pre-K, they kept both in, but set them to expire in just six years. They made similar choices for many other programs. Manchin is not a fan of this approach, and in November he decried the bill as full of “shell games” and “budget gimmicks” meant to hide its true costs.
The truth is in the eye of the beholder. On one hand, the bill (if passed) really would end all these programs after a certain date. On the other hand, Democrats are openly hoping they all end up becoming permanent (though they say that a future Congress extending them would have to figure out how to pay for them).
Regardless, Manchin has lately seemed drawn toward a competing Congressional Budget Office analysis commissioned by Sen. Lindsey Graham (R-SC), which estimates how much these programs would cost if they were fully extended for 10 years. And that has put Manchin on a collision course with one major part of the bill above all: the expanded child tax credit.
Joe Manchin vs. the expanded child tax credit
The child tax credit, before 2021, was set at $2,000 per child per year, and many of the poorest families in the country could not claim it (because you needed taxable earnings to do so).
But Biden’s American Rescue Plan Act, signed into law in March, majorly expanded the child tax credit for this year. That entailed three key changes:
- First, the child tax credit was made more generous for almost everyone (all but the wealthiest families) — rather than $2,000 per year, it would now be $3,600 per child under 5 years old and $3,000 per child aged 6 to 17 each year.
- Second, that yearly amount would be split up and given out in monthly payments directly to families (rather than just being something you could deduct on your tax return once a year). Those payments started going out in July.
- Third, the full credit would be newly made available to the poorest families, including those with no taxable income at all. This is what’s known as making the tax credit “fully refundable.” This change was tremendously exciting to many anti-poverty activists and wonks, who had long been frustrated that the poorest of the poor — children most in need — were excluded from many government benefits like this. Per one study, making this full refundability change permanent would cut child poverty by 19 percent.
So basically, the expanded child tax credit is a near-universal benefit for families with children, but folded inside it is a transformative anti-poverty proposal aimed at helping the neediest.
These changes were set to last only for 2021 — they expire at the end of this month. So, in the Build Back Better Act, Democrats wanted to extend them for longer. There is, however, a catch: that structure makes the policy very expensive. Again, this is at least $1,000 in extra spending for the vast majority of children in the US. If you’re thinking about the bill from an overall cost perspective, it adds up.
So when Democrats drafted the Build Back Better Act, they decided to keep the more generous credit (the extra $1,000 or $1,600 per child) going for only one more year, 2022, though they made clear they hoped Congress would extend it further later on. Importantly, though, the current bill makes the change to refundability — the help for the poorest — permanent.
When the Congressional Budget Office scored the bill, they said these child tax credit provisions would cost just $185 billion over 10 years. But that’s because the full thing is only really in effect for one year.
So when Sen. Graham commissioned a new CBO analysis of how much the bill’s provisions would cost if permanently extended (without new pay-fors), the expanded child tax credit stood out most prominently. Rather than $185 billion over 10 years, it would now cost nearly $1.6 trillion — nearly eight times as much. The bill’s other provisions pale in comparison.
Congressional Budget Office table of how much Build Back Better provisions would cost if fully extended over 10 years. Congressional Budget Office
Manchin has apparently decided these are the numbers he wants to work with, so accordingly, he’s trained his sights on the expanded child tax credit. One source told CNN’s Manu Raju that Manchin wanted to “zero” out the child tax credit provisions in the bill. The problem is that Manchin had declared he wanted the overall bill to cost less than $1.75 trillion over 10 years — and the expanded child tax credit, if extended for that long, would nearly hit that number by itself.
Per a source familiar with his thinking: “Senator Manchin is not telling President Biden what to include or not include. He has always been supportive of the CTC. He has also made it clear the cost should not be greater than $1.75T. Paying for CTC over 10 years is about $1.4T.”
— Sahil Kapur (@sahilkapur) December 15, 2021
So Manchin is essentially demanding one of two things: either the expanded CTC gets dropped from the bill, or nearly everything else gets dropped from the bill.
Critics have cried hypocrisy, pointing out that Manchin does not apply these standards of budgeting to, say, defense spending. They’ve also pointed out that, as the bill is written, most of the child tax credit expansion does expire in 2022, suggesting that if Manchin doesn’t want it extended longer, he should just vote it down later. He has not been won over by these arguments.
The road ahead
The White House is in a difficult position. Biden viewed the expanded child tax credit as central to his “American Families Plan.” It is probably the single policy in Build Back Better that helps the most people in the most tangible, easy-to-understand way (including, of course, people in West Virginia). Democrats had hoped that its direct payments to families would increase support for the president and their party.
Meanwhile, Democratic constituencies care deeply about the various other programs in the bill — for pre-K, child care, health care, etc. — and don’t want those dropped either. But at the end of the day, Manchin’s vote is necessary to pass anything at all.
It is worth recalling that a lot of what drives the cost of the expanded child tax credit goes to families that don’t really “need” it — the middle and upper class. It’s certainly nice for these families to get an extra thousand dollars per child each year, but it’s not clear they desperately need it. And as New York Magazine’s Eric Levitz points out, the theory that these payments would increase political support for Biden and Democrats does not seem to have panned out — one poll showed about half of the beneficiaries don’t even know about it.
If Democrats are forced to prioritize, the provision of the expanded child tax credit that would help the most people is the change making it fully refundable — a change that is relatively inexpensive (as shown by the fact that it’s actually made permanent in the current bill rather than set to expire early). That’s where the antipoverty benefits are most significant. It is possible Manchin will object to this too, since he tends to dislike what he calls “welfare” and payments to non-workers, but he hasn’t seemed focused on this aspect lately, so he could compromise on it.
With a deal not seeming imminent and a major reworking of the bill possibly coming, Biden and leading Democrats will have much to dwell on over the holidays. The one silver lining for them is that Manchin is still talking — though he is driving a very hard bargain, he does seem to want to get to a deal, and he doesn’t seem comfortable just killing the whole bill. But that deal, if it does come about, will likely involve further painful compromises.