Reconciliation Game Theory: Mapping Out the Possibilities

By Stuart E. Leblang, Michael J. Kliegman and Amy S. Elliott

We are closely following the Build Back Better reconciliation bill, as it contains numerous and fundamental tax changes.^[1] But Congressional Democrats have a lot riding on how the next few weeks play out.  Is it possible that House Republicans could hold the key to whether Congressional Democrats’ efforts to pass their agenda via reconciliation will be successful?

We believe that the $3.5 trillion reconciliation bill ² (as framed by the instructions ³ ) will likely get paired back to something closer to $2 trillion ⁴ after the House Budget Committee marks up the package⁵ (something that was supposed to happen this week, but has been pushed to next week ⁶ ).  Getting clarity on what Senate Democrats (namely Sen. Joe Manchin and Sen. Kyrsten Sinema, who have both objected to the size of the bill ^[7 ) are willing to approve (a top-line spending number and an offsets number) is the X factor holding up progress.⁸  

Although negotiations are ongoing, we do not expect that that delay will impact the planned September 27 House vote on the bipartisan infrastructure (BIF) bill. ⁹   About half of the Congressional Progressive Caucus (numbering 95 House members ¹⁰ ) may be prepared to vote against the BIF bill at that time. ¹¹  House Leadership confirmed this morning that it will put the BIF bill on the House floor on September 27, although the actual vote could slip a day. ¹² 

In an effort to handicap whether the reconciliation bill can pass, we decided to apply game theory to the scenario in which a sizable number of progressives decide to exert their leverage and vote against the bipartisan infrastructure bill.  Ways we could see this playing out:

Note that Sen. Sinema reportedly told President Biden last week that if the September 27 vote on the bipartisan infrastructure bill fails, “she won’t be backing a reconciliation bill.” ¹⁴  We are choosing to call her bluff.  But we could be wrong.

One major area of uncertainty that factors into our analysis is whether Speaker Pelosi would be willing to bring the BIF bill up for a vote in the House (either on September 27 or in the days soon after) if she knows she does not have enough votes for it to pass.  As of this morning, House Leadership was asking its members to vote for the bill, downplaying the leverage progressives think they have by threatening to vote against the BIF bill at this stage. ¹⁵ 

Some observers are of the view that smart politicians time a vote on a bill for when they know it can pass.  But others believe that if the BIF bill fails initially, that does not mean that it is doomed in spite of Sen. Sinema’s (and others’) threats. ^[16]  Speaker Pelosi could very well bring it up for consideration a second time, at which point more Republicans might be willing to support it if they know that the reconciliation effort has failed.  Alternatively, Speaker Pelosi could bring the BIF bill up for a vote a second time once the reconciliation bill has passed both chambers, at which point the progressive holdouts have said they will support it.

While taking a bipartisan approach to passing the BIF bill in the House (even on a second try, if the initial vote fails) might seem within the realm of possibility, the fault in that line of reasoning is that most Republicans believe that if the BIF passes the House, it dramatically increases the chances that Democrats will be able to navigate their differences to secure a win on the much larger and much more progressive Build Back Better reconciliation bill.  Most Republicans likely will not want to be responsible for that. ¹⁷   While there are dozens of House Republicans who support the BIF bill, the bulk of them will be persuaded to wait on the sidelines until they are assured Democrats have the votes to pass it without them (or until reconciliation is dead). ¹⁸  They do not want to be accused of facilitating a major Democratic achievement.

Another major area of uncertainty is whether enough progressives are really willing to stand their ground and vote against the BIF bill when push comes to shove (especially if doing so could threaten the chances of the reconciliation bill happening at all).  Rep. Alexandria Ocasio- Cortez (already passed both chambers of Congress—something that could take weeks if not months—adding that shea progressive Democrat) said yesterday that she will vote against the BIF bill unless reconciliation has thinks about 45 House Democrats are prepared to join her. ¹⁹   Rep. Pramila Jayapal (D-Wash.), the chair of the Congressional Progressive Caucus who has been whipping for votes against the BIF bill next week, said yesterday that “there are not sufficient votes to bring up the infrastructure bill without reconciliation going first.” ²⁰ 

Observers question whether Rep. Ocasio-Cortez really wants her political tactics compared to those of former Sen. Jim DeMint (a Tea Party Republican who refused to compromise, often bucking his party’s leadership in ways that cost his party major legislative victories and prevented it from regaining control of the Senate in 2010 and 2012).  One clear difference between the two lawmakers is that Rep. Ocasio-Cortez has already signaled a willingness to compromise in some areas.  (While she was once dead-set against repealing the $10,000 cap on deducting state and local taxes (SALT), as the benefit of such a repeal would largely accrue to the wealthy, she is now open to a possible partial SALT cap repeal.) ²¹  However, we are inclined to take Rep. Ocasio-Cortez at her word and assume that she will not cave on her threat to hold the BIF bill hostage until the reconciliation bill is in the bank. ²² 

The X Factor

Lawmakers cannot pass a reconciliation bill until they have broad agreement across both chambers on the outlines (this is the X factor, namely, the size of the spending and to what extent it will be offset).  Speaker Pelosi indicated September 20 that “decisions need to be made on the ‘overall direction’ of the package . . . in the next 48 hours.” ²³  Further, Speaker Pelosi is now promising that she will not bring a version of the reconciliation bill up for a vote in the House that is “more expensive” than what would be voted on in the Senate.

The scary truth is that there is a very real universe in which Democrats simply will be unable to come to agreement on the broad outlines of a reconciliation bill.  The chasm is wide—some $1.5 trillion on one side and as much as $3.5 trillion on the other.  The fact that, as of last night, Speaker Pelosi was still hoping the agreed-to compromise would be “at the $3.5 trillion number” ²⁴ is not a good sign for the progress of negotiations in our view.  Neither is it a good sign that, on September 19, it was reported that Manchin does not want Congress to vote on the reconciliation package until 2022. ²⁵ 

Speaking of game theory, there are many who are wondering why Sens. Manchin and Sinema would agree to show their cards at this stage in the negotiations and give House leadership a top-line number.  The two clearly want to slow-walk the negotiations to exert as much pressure as possible.  But they have their own priorities—none of which can get accomplished if they stonewall a reconciliation compromise.  It certainly could happen that no compromise is reached.  But we believe that the implications for the Democratic Party will be devastating in that case—more devastating than what will happen if moderates like Sens. Manchin and Sinema ultimately cave and agree to a compromise reconciliation bill.

The “failure is not an option” attitude of many Democrats²⁶ has some observers—even some Republicans—thinking that the chances that an albeit smaller Build Back Better reconciliation bill could pass this year have gone up in recent weeks (from around 50 percent to around 70 percent).  If Democrats fail to pass the reconciliation bill, it is thought that they will lose control of the House ²⁷ (although there is an argument that, depending on what is in the bill, Democrats could also likely lose the House for passing it, although maybe by not as much).

Most Likely Scenario

No one knows what is going to happen with any certainty.  With all the usual caveats, our current thinking on the most likely way the BIF bill and the Build Back Better reconciliation bill could shake out is that, as soon as a solid middle ground number is established on reconciliation (which we think will likely end up in the low $2 trillion range), the reconciliation bill could relatively quickly get passed by Democrats in both chambers, unlocking the BIF bill for a vote in the House and ultimate enactment.  (Lawmakers are actually ahead-of-schedule when you compare this reconciliation bill to the 2017 Tax Cuts and Jobs Act, which did not have a Ways and Means markup until the first week of November.) While we used to think a failed vote on the BIF bill would blow up reconciliation’s chances, we now think the landscape has changed.  Assuming the X factor can be sorted out before the end of the year, then we expect that both the BIF bill and the reconciliation bill will ultimately get enacted this Congress.

To be clear, our most likely scenario today could very well change tomorrow, as there are lots of moving parts in Congress right now.  One of them is the debt-limit increase.  On September 19, Treasury Secretary Janet Yellen once again pressed lawmakers to raise the debt ceiling before the federal government is “unable to pay its bills”—something that will happen sometime in October. ²⁸   But all reports indicate that an effort to increase the debt limit until 2022 by pairing it with a short-term government funding bill will fail in the Senate.  In that case, Democrats may be forced to amend the FY 2022 budget resolution (containing the reconciliation instructions), which will require significant time in both the House and the Senate (including a so-called vote-a-rama).  This will complicate the dynamics and could stress negotiations over the top-line number.

^{[1] “Tax Provisions in Ways and Means Reconciliation Draft Could Have Far-Reaching Impacts on the Markets” (Sept. 14, 2021).}

^{[2] The draft of the bill was reported out by the 13 different House committees by the Sept. 15, 2021 deadline.}

^{[3] Concurrent Resolution on the Budget for Fiscal Year 2022 (S. Con. Res. 14), which was agreed to in the House Aug. 24, 2021 and in the Senate Aug. 11, 2021 (https://www.congress.gov/117/bills/sconres14/BILLS-117sconres14es.pdf).}

^{[4] There is no certainty at this point around size, so our estimates are based on common sentiment.}

^{[5] The Budget Committee is responsible for putting the text that was marked up by the 13 House committees into one bill, but it does not have the authority to change the text (to reduce the bill’s scope, for example).  That will likely happen when the bill gets to the Rules Committee, which is the final stop before it is brought to the House floor for a vote.  (https://budget.house.gov/publications/fact-sheet/budget-reconciliation-basics)}

^{[6] “We have some news here:  The House Budget Committee will not mark up the Democrats’ reconciliation package this week.  This means that the $3.5 trillion reconciliation package won’t be ready for the House floor by next week,” as reported by John Bresnahan, Anna Palmer and Jake Sherman, September showdowns, PUNCHBOWL NEWS AM, Sept. 20, 2021 (https://punchbowl.news/).[7] However, Sen. Jon Tester (D-MT) will also play a role, as he has indicated that, while he might be able to support a larger reconciliation bill, he wants it fully offset—and it is not clear if he thinks revenue from dynamic scoring counts as an offset.}

^{[8] House Democrats do not want to be put in a position where they are pressured to make a tough vote on a reconciliation bill that has no chance of passing the Senate, hence the need to scale the bill down before the House votes.}

^{[9] The bipartisan infrastructure bill or BIF (its official name is the Infrastructure Investment & Jobs Act or IIJA) passed the Senate on Aug. 10, 2021 (Senate Amendment 2137 to H.R. 3684) with the support of 48 Democrats, 2 Independents and 19 Republicans.  The BIF bill is really a Senate infrastructure bill, as many of House members’ priorities were not included.}

^{[10] https://progressives.house.gov/caucus-members}

^{[11] “Speaker Nancy Pelosi’s left flank is quietly mulling whether to mobilize its roughly 100-member bloc to tank the centrist- crafted Senate infrastructure bill when it reaches the House floor within a week — unless they’re assured that a mammoth Democrats-only social spending bill will also make it to President Joe Biden’s desk. . . . Congressional Progressive Caucus Chair Pramila Jayapal (D-Wash.) . . . .  said more than half of her 96-member caucus has privately indicated they’re willing to block the bipartisan Senate bill without their party-line bill in tow — far more than the roughly two dozen liberals who have gone public with their threat,” as reported by Sarah Ferris, Burgess Everett, Heather Caygle, Liberals get ready to grab wheel of Democrat agenda, POLITICO Pro, Sept. 17, 2021 (subscription required).}

^{[12] Rachel Bade, Garrett Ross and Eli Okun, Sinema, House mods get their way, POLITICO Playbook, Sept. 21, 2021 (https://www.politico.com/playbook).}

^{[13] Including Problem Solvers Caucus members Rep. Brian Fitzpatrick (R-PA), Rep. Tom Reed (R-NY) and Rep. Fred Upton (R-MI).}

^{[14] Rachel Bade, Ryan Lizza, Tara Palmeri and Eugene Daniels, Scoop:  Sinema issues ultimatum to Biden, POLITICO Playbook, Sept. 20, 2021 (https://www.politico.com/newsletters/playbook/2021/09/20/scoop-sinema-issues-ultimatum-to-biden-494397).}

^{[15] “‘I don’t agree with the judgement of those who believe that it would somehow compel the moderate wing of the caucus to be more supportive,’ [said House Majority Leader Steny Hoyer],” as reported by Sarah Ferris and Anthony Adragna, Steny Hoyer says the bipartisan infrastructure bill will get a vote next week, despite progressive wishes, POLITICO Congress Minutes, Sept. 21, 2021 (subscription required).}

^{[16] We think the moderates (including Rep. Kurt Schrader) that have joined Sen. Sinema in threatening to tank the reconciliation bill if the September 27 vote on the BIF bill fails can be persuaded to come around in time.  We could be wrong.  (See Rachel Bade, Ryan Lizza, Tara Palmeri and Eugene Daniels, Scoop:  Sinema issues ultimatum to Biden, POLITICO Playbook, Sept. 20, 2021 (https://www.politico.com/newsletters/playbook/2021/09/20/scoop-sinema-issues-ultimatum-to-biden-494397).)}

^{[17] “House Minority Leader Kevin McCarthy said this [Sept. 20, 2021]:  ‘Before, there were some that were really looking at it [the bipartisan infrastructure bill.] Then after the Democrat mods collapsed, a lot of them said they weren’t going to [vote for it] because it’s viewed as one bill now.  And so, they don’t want to add another [$]5 trillion.’ Let us translate McCarthy for you:  Very few Republicans are going to vote for infrastructure, and he’ll nudge his party in that direction,” as reported by John Bresnahan, Anna Palmer and Jake Sherman, What are Democrats doing?, PUNCHBOWL NEWS AM, Sept. 21, 2021 (https://punchbowl.news/).}

^{[18] “Fewer than a dozen House Republicans are expected to vote for the $550 billion infrastructure bill — which got 19 Senate GOP votes last month — according to multiple lawmakers in the party.  But the infrastructure measure’s House GOP support could triple if Democrats detach its fate from a party-line social spending bill with a multitrillion-dollar price tag, several House Republicans estimated in Monday interviews . . . . ‘If the $3.5 trillion reconciliation push dies, there will be more GOP support,’ said centrist Rep. Don Bacon (R-Neb.), . . . . [adding that members of the bipartisan Problem Solvers Caucus] would lend a hand on infrastructure ‘if there is a standalone vote,’” as reported by Olivia Beavers, House GOP unlikely to rescue Biden’s infrastructure bill on the floor, POLITICO, Sept. 21, 2021 (https://www.politico.com/news/2021/09/21/house-gop-infrastructure- count-513230).}

^{[19] “AOC told me:  ‘I will not vote for an infrastructure bill unless we have reconciliation ready to go.’ She confirmed she meant that it has to pass both chambers of Congress for her to get to YES on infrastructure — and predicted about 45 progressive Dems are in that camp,” @mkraju, Twitter (Sept. 20, 2021, 3:08 pm), https://twitter.com/mkraju/status/1440030049453764611.}

^{[20] Nick Sobczyk, ‘The biggest mashup we’ve ever had’:  Dems scramble on agenda, E&E Daily, Sept. 21, 2021 (https://www.eenews.net/articles/the-biggest-mashup-weve-ever-had-dems-scramble-on-agenda/).}

^{[21] “‘I am open to taking a look at SALT and addressing concerns for families put under the squeeze in high cost of living areas,’” Rep. Ocasio-Cortez tweeted Sept. 17, 2021, as reported by Jarrell Dillard, Ocasio-Cortez Says She’s Open to Review SALT Cap, Opposes Repeal, DAILY TAX REPORT, Sept. 17, 2021 (subscription required).}

^{[22] “‘There is absolutely a level where it’s not just something is not better than nothing, but something can actually do more harm,’ said Rep. Alexandria Ocasio-Cortez (D-N.Y.) of the infrastructure bill.  ‘That’s why we are holding firm on our line.  …This isn’t just a flight of fancy,’” as reported by Burgess Everett, Heather Caygle, Democrats fear Biden’s domestic agenda could implode, POLITICO PRO, Sept. 21, 2021 (subscription required).}

^{[23] As reported by John Bresnahan, Anna Palmer and Jake Sherman, What are Democrats doing?, Punchbowl News AM, Sept. 21, 2021 (https://punchbowl.news/).}

^{[24] Press Release, Dear Colleague on Continuing Action on the Build Back Better Agenda, Speaker Pelosi (Sept. 20, 2021) (https://www.speaker.gov/newsroom/92021-3).}

^{[25] Hans Nichols, Scoop - Manchin:  Delay Biden plan to ‘22, AXIOS, Sept. 19, 2021 (https://www.axios.com/scoop-manchin-delay- biden-plan-to-22-8116a0e8-ed10-4662-8ebb-6922f073a8e8.html).}

^{[26] Marianne Levine, Sarah Ferris, Heather Caygle, Democrats vow to go the distance as September problems pile up, POLITICO PRO, Sept. 19, 2021 (subscription required).}

^{[27] For example, “Rep. Emanuel Cleaver (D-Mo.) . . . warned his party ‘will pay for it at the polls’ if it fails in enacting Biden’s agenda,” as reported by Burgess Everett, Heather Caygle, Democrats fear Biden’s domestic agenda could implode, POLITICO PRO, Sept. 21, 2021 (subscription required).}

^{[28] Janet Yellen, Janet Yellen:  Congress, Raise the Debt Limit, WALL ST. J., Sept. 19, 2021 (https://www.wsj.com/articles/congress- raise-debt-limit-ceiling-yellen-treasury-brinkmanship-federal-budget-11632069056).}