Congress Juggles China Bill, Democrats’ Climate and Drug-Pricing Ambitions

The three-week work period may be the last chance lawmakers have for a legislative victory before campaigning begins in earnest for midterm election races across the country. Republicans are heavily favored to win back control of the House this fall, while the Senate is seen as a tossup.

Lawmakers have been working since last year to negotiate the China bill, which aims to bring semiconductor manufacturers to the U.S., by reconciling differing versions passed by the House and Senate. The bill, called USICA in the Senate, was inching toward the finish line when Senate Minority Leader

Mitch McConnell

(R., Ky.) last month said he wouldn’t move forward unless Democrats dropped their efforts to revive economic proposals that Republicans oppose.

The purpose of the Democratic economic package is to lower prescription-drug prices, provide incentives for reducing carbon emissions and raise taxes on companies and high-income households.

Negotiations on the China bill have since come to a standstill, a GOP aide said.

In recent weeks, several chip manufacturers have announced they would reconsider plans to build in the U.S. if Congress didn’t act soon. An all-senators classified briefing by Biden administration officials is planned for Wednesday to emphasize the national security implications, said several aides. Efforts are under way to put together a similar briefing for the House, said a person familiar with the matter.

“Fundamentally we will not have the ability to protect ourselves as a nation if this bill is not passed,” Commerce Secretary

Gina Raimondo

said in an interview, pointing to the U.S. dependency on Taiwan for semiconductors and overall supply-chain disruptions. Ms. Raimondo acknowledged Mr. McConnell has slowed down the process.

Some Democrats are pushing for House leadership to simply take the bill the Senate passed last year and put it up for a vote, a Democratic lawmaker said, worried that future delays would prevent the bill from passing at all. The Senate version is narrower than the House version, which included some provisions to address climate change.

“Mitch isn’t saying anything new,” said Sen.

Ben Sasse

(R., Neb.). “We should be doing a China bill that accelerates domestic chip development and increases certain categories of technological research funding.”

“Frankly we could have done it a year ago, but at this point it needs to get done in the next three weeks,” said Rep.

Abigail Spanberger,

a Virginia Democrat facing a tough race in November.

At the same time, Senate Majority Leader

Chuck Schumer

(D., N.Y.) is working to revive talks with Sen. Joe Manchin (D., W.Va.) on the Democrats’ climate, prescription drug pricing and tax bill, which Democrats could pass without any Republican votes. That bill, a stripped-down version of last year’s failed Build Back Better legislation, would use a special process called reconciliation that allows it to advance with just a simple majority in the 50-50 Senate, rather than the 60 typically required.

Potentially complicating matters, Mr. Schumer tested positive for Covid-19 and will work remotely this week, his spokesman said Sunday night.

Mr. Manchin blocked a roughly $2 trillion version of the Democratic bill last year and pressed for a smaller plan with fewer short-term programs and more emphasis on reducing budget deficits. But it has taken months for any plan to come together, and Democrats are running out of time with elections approaching that could end their slim majorities.

But there is no full bill, and it would still need support from Mr. Manchin, the rest of the Senate Democrats and nearly all House Democrats. A spokeswoman for Mr. Manchin said the senator “continues to work in good faith to see if there is a pathway forward.”

Some of the tax changes, including the fate of the U.S. piece of the global corporate minimum tax agreement and the $10,000 cap on the state and local tax deduction, remain in flux. A proposed surtax on people with incomes above $10 million seems less likely to be included. Other ideas, such as about $80 billion of spending on beefed-up tax enforcement, seem more likely to advance.

Democrats have settled on at least one tax increase, aides said. They are planning a change that would raise taxes on many business owners with incomes of at least $400,000 for individuals and $500,000 for married couples. The emerging plan would devote the money to extending the life of the Medicare trust fund.

Under current law, high-income investors, wage earners and self-employed people pay 3.8% in taxes atop their regular income-tax rates. But active business income doesn’t face that same additional tax.

In some instances, including Mr. Biden’s own book-writing business, taxpayers attempt to reclassify earnings that could be considered self-employment income or wages as lower-taxed business profits. The Democrats’ plan would hit that group with a 3.8% tax but it would also affect a much broader set of owners of closely held businesses.

Reports of Democrats making detailed choices to pare back their tax increases and spending agenda are an indication that they are making progress toward something that can fit within Mr. Manchin’s parameters, said Donald Schneider, deputy head of U.S. policy at Piper Sandler.

“There are some things that they are doing that show that they are getting serious,” said Mr. Schneider, a former House Republican aide.

But he said that some of the most crucial issues remain unresolved, including Mr. Manchin’s insistence on an all-of-the-above energy strategy that would conflict with progressives’ preference for focusing on climate change.

Last week, Democrats submitted text on a plan to lower the cost of prescription drugs to the Senate parliamentarian for review, a sign that the budget talks are moving forward. The Congressional Budget Office says that plan would lower budget deficits by nearly $300 billion over a decade.

Lawmakers also want Congress to act on extending the subsidies for purchasing health insurance under the Affordable Care Act. If the subsidies aren’t extended, millions of consumers will see their premiums rise next year, because additional financial help provided as part of Covid-19 relief ends on Jan. 1.

It is unclear whether Democrats will be able to agree to include it in the reconciliation bill. Many lawmakers wanted Congress to address it soon because recipients of the subsidies will likely receive a notice in the next few months that their premiums are going up if Congress doesn’t act.

“In a time when costs are high for families, we need to keep healthcare costs low,” said Rep. Suzan DelBene (D., Wash.), chair of the moderate New Democrat coalition.

Write to Natalie Andrews at [email protected] and Richard Rubin at [email protected]

The three-week work period may be the last chance lawmakers have for a legislative victory before campaigning begins in earnest for midterm election races across the country. Republicans are heavily favored to win back control of the House this fall, while the Senate is seen as a tossup.

Lawmakers have been working since last year to negotiate the China bill, which aims to bring semiconductor manufacturers to the U.S., by reconciling differing versions passed by the House and Senate. The bill, called USICA in the Senate, was inching toward the finish line when Senate Minority Leader

Mitch McConnell

(R., Ky.) last month said he wouldn’t move forward unless Democrats dropped their efforts to revive economic proposals that Republicans oppose.

The purpose of the Democratic economic package is to lower prescription-drug prices, provide incentives for reducing carbon emissions and raise taxes on companies and high-income households.

Negotiations on the China bill have since come to a standstill, a GOP aide said.

In recent weeks, several chip manufacturers have announced they would reconsider plans to build in the U.S. if Congress didn’t act soon. An all-senators classified briefing by Biden administration officials is planned for Wednesday to emphasize the national security implications, said several aides. Efforts are under way to put together a similar briefing for the House, said a person familiar with the matter.

“Fundamentally we will not have the ability to protect ourselves as a nation if this bill is not passed,” Commerce Secretary

Gina Raimondo

said in an interview, pointing to the U.S. dependency on Taiwan for semiconductors and overall supply-chain disruptions. Ms. Raimondo acknowledged Mr. McConnell has slowed down the process.

Some Democrats are pushing for House leadership to simply take the bill the Senate passed last year and put it up for a vote, a Democratic lawmaker said, worried that future delays would prevent the bill from passing at all. The Senate version is narrower than the House version, which included some provisions to address climate change.

“Mitch isn’t saying anything new,” said Sen.

Ben Sasse

(R., Neb.). “We should be doing a China bill that accelerates domestic chip development and increases certain categories of technological research funding.”

“Frankly we could have done it a year ago, but at this point it needs to get done in the next three weeks,” said Rep.

Abigail Spanberger,

a Virginia Democrat facing a tough race in November.

At the same time, Senate Majority Leader

Chuck Schumer

(D., N.Y.) is working to revive talks with Sen. Joe Manchin (D., W.Va.) on the Democrats’ climate, prescription drug pricing and tax bill, which Democrats could pass without any Republican votes. That bill, a stripped-down version of last year’s failed Build Back Better legislation, would use a special process called reconciliation that allows it to advance with just a simple majority in the 50-50 Senate, rather than the 60 typically required.

Potentially complicating matters, Mr. Schumer tested positive for Covid-19 and will work remotely this week, his spokesman said Sunday night.

Mr. Manchin blocked a roughly $2 trillion version of the Democratic bill last year and pressed for a smaller plan with fewer short-term programs and more emphasis on reducing budget deficits. But it has taken months for any plan to come together, and Democrats are running out of time with elections approaching that could end their slim majorities.

But there is no full bill, and it would still need support from Mr. Manchin, the rest of the Senate Democrats and nearly all House Democrats. A spokeswoman for Mr. Manchin said the senator “continues to work in good faith to see if there is a pathway forward.”

Some of the tax changes, including the fate of the U.S. piece of the global corporate minimum tax agreement and the $10,000 cap on the state and local tax deduction, remain in flux. A proposed surtax on people with incomes above $10 million seems less likely to be included. Other ideas, such as about $80 billion of spending on beefed-up tax enforcement, seem more likely to advance.

Democrats have settled on at least one tax increase, aides said. They are planning a change that would raise taxes on many business owners with incomes of at least $400,000 for individuals and $500,000 for married couples. The emerging plan would devote the money to extending the life of the Medicare trust fund.

Under current law, high-income investors, wage earners and self-employed people pay 3.8% in taxes atop their regular income-tax rates. But active business income doesn’t face that same additional tax.

In some instances, including Mr. Biden’s own book-writing business, taxpayers attempt to reclassify earnings that could be considered self-employment income or wages as lower-taxed business profits. The Democrats’ plan would hit that group with a 3.8% tax but it would also affect a much broader set of owners of closely held businesses.

Reports of Democrats making detailed choices to pare back their tax increases and spending agenda are an indication that they are making progress toward something that can fit within Mr. Manchin’s parameters, said Donald Schneider, deputy head of U.S. policy at Piper Sandler.

“There are some things that they are doing that show that they are getting serious,” said Mr. Schneider, a former House Republican aide.

But he said that some of the most crucial issues remain unresolved, including Mr. Manchin’s insistence on an all-of-the-above energy strategy that would conflict with progressives’ preference for focusing on climate change.

Last week, Democrats submitted text on a plan to lower the cost of prescription drugs to the Senate parliamentarian for review, a sign that the budget talks are moving forward. The Congressional Budget Office says that plan would lower budget deficits by nearly $300 billion over a decade.

Lawmakers also want Congress to act on extending the subsidies for purchasing health insurance under the Affordable Care Act. If the subsidies aren’t extended, millions of consumers will see their premiums rise next year, because additional financial help provided as part of Covid-19 relief ends on Jan. 1.

It is unclear whether Democrats will be able to agree to include it in the reconciliation bill. Many lawmakers wanted Congress to address it soon because recipients of the subsidies will likely receive a notice in the next few months that their premiums are going up if Congress doesn’t act.

“In a time when costs are high for families, we need to keep healthcare costs low,” said Rep. Suzan DelBene (D., Wash.), chair of the moderate New Democrat coalition.

Write to Natalie Andrews at [email protected] and Richard Rubin at [email protected]