The September Congressional Rush Begins: Things for Deep Tech to Watch

As August gives way to September in the nation’s capital, two annual phenomena occur. First, early mornings have a welcome crispness in the air that indicates the coming end of the stagnant and humid summer air that plagues this city (which, after all, was built on a swamp). Second, Congress returns from its summer recess and engages in the annual rush to pass budget and spending legislation before the fiscal year expires on September 30 in order to avoid a dreaded “government shutdown.”

Prior to the summer recess, there was activity on two high-profile pieces of legislation with significant implications for the deep tech and investing communities: the “Infrastructure Bill (formally named the “Infrastructure Investment and Jobs Act),” and the “Budget Reconciliation Bill.” The two bills contain trillions of dollars in new spending, and the reconciliation bill will also contain changes to the tax code (i.e., tax increases) that have been the subject of recent reporting in the press.

Much of the focus in Washington for the next month will be on the progress — or fate — of these two bills. Although they are separate pieces of legislation, and are at different stages in the legislative process, for political reasons, their paths are tied together for now.

The Infrastructure Bill: What’s in it for Deep Tech?

From the earliest days of his administration, President Biden has pressed Congress to pass legislation aimed at shoring up the nation’s infrastructure as part of his larger “Build Back Better” initiative. Congress has a history of passing large infrastructure bills, typically focused on roads, bridges, and airports. The Biden administration has taken a more expansive view of what constitutes “infrastructure,” and that is good news for deep tech, as the bill contains $550 billion in new spending over five years for things such as broadband deployment, clean and renewable energy, and water infrastructure in addition to roads, bridges, and airports. The bill — over 2,700 pages long — also contains the regular annual appropriations for a number of executive branch agencies, bringing the amount of spending to over $1 trillion.

The White House released a summary of the legislation upon reaching a bipartisan agreement on its contents, but here are some highlights:

• $73 billion to improve the nation’s electrical grid, including funds for grid infrastructure and resiliency, energy cybersecurity, carbon capture technology, and hydrogen power.
• $65 billion for continued broadband deployment.
• $35 billion to improve the nation’s water infrastructure.
• $7.5 billion to build out the nation’s electric vehicle charging network so it can sustain the growth of electric vehicles on our roads.

The Senate passed the bill in early August, sending it to the House for its consideration before leaving for recess. The bill passed by a vote of 69–30, a rare bipartisan vote which indicates an across-the-board commitment to this funding. However, its path to passage in the House, which will be necessary to get it to the president’s desk for his signature, is not yet clear.

When the bill was first proposed, it contained trillions of more dollars to fund a variety of programs under an even more expansive definition of “infrastructure,” including financing for community college, child care, paid family leave, and climate change. This large price tag caused a number of Members of the Senate, such as Sen. Joe Manchin (D-WV) and Kyrstin Sinema (D-AZ), to express doubt. In order to ensure the 60 votes needed for the bill to pass the Senate, this additional spending was moved into the proposed “Budget Reconciliation Bill,” which for reasons related to complicated Senate procedure, will only require 50 votes to pass the Senate.

The Budget Reconciliation Bill: Where the Taxes Are

The second piece of legislation that is attracting a lot of attention is the “Budget Reconciliation Bill.” This bill will be complex and is still being drafted as of this writing, but its two most important elements are roughly $3.5 trillion in spending, and changes to the tax code that will be necessary to finance the spending in it and the infrastructure bill. Congressional leaders hope to wrap this bill up by the end of September, a very ambitious goal.

Much of this additional $3.5 trillion in spending is the money for community college, child care, paid family leave, and climate change that was mentioned above. Some refer to this category of spending by a neologism, “Human Infrastructure.”

In order to raise revenues needed to pay for all of this spending, the reconciliation bill will also contain a package of changes to the tax code that will be of interest to the business and investment community. These proposed changes are currently being drafted by the House Ways and Means Committee and the Senate Finance Committee, to be included later this month in the larger reconciliation bill.

Tax legislation is among the most controversial that is considered by Congress, and those responsible for drafting it are beset upon by nearly every interest group in Washington. For this reason, the process of drafting a proposal that threads the needle needed to get enough votes for passage will be both fluid and opaque. The only guarantee over the next few weeks is that news reports on the legislation will be outdated by the time they are published because things will change up to the minute there is a final agreement.

The most current look at what the House Ways and Means Committee is considering came on Sunday evening when news outlets reported on a proposal that was circulated on the Hill yesterday. Changes reportedly under consideration are:

• An increase of marginal annual income rates from 37%-39.6% for those with annual income greater than $523,000, plus an additional 3% tax on those with an income greater than $5 million.
• An increase of the corporate tax rate from 21%-26.5% for firms with annual income greater than $5 million. Smaller companies would see a decrease to 18%.
• An increase in capital gains tax from 20%-25%.
• Reports also indicate that the committee will consider changes to the treatment of carried interest, but details are not available now.

So What’s the Endgame?

As mentioned earlier, the path to passage of these two pieces of legislation is not clear, and their paths are tied, as leaders in both the House and Senate face fractions in their caucuses that make things murky.

Put most simply, members of the progressive wing of the House are insisting that they will not support the infrastructure bill unless the reconciliation bill (a priority for them because of the “human infrastructure” spending) is assured to pass both the House and Senate as well (without these votes, the bill likely will not pass). However, Senator Manchin announced last week that he cannot support the reconciliation bill in its current proposed form because of its high price, and without his vote, it will not pass the Senate. Centrist Democrats in the House have also indicated some discomfort with the proposed $3.5 trillion price tag of the bill.

So having passed the Senate, the infrastructure bill is not likely to move forward in the House until there is a resolution to the impasse over the reconciliation bill. Because the reconciliation bill is still being drafted by relevant committees, congressional leaders have at least a little room to find a way to come up with a solution that gains enough support so it can pass the House and Senate, making the House’s passage of the infrastructure bill likely, eventually.

Things are likely to move quickly over the next few weeks, and as noted earlier, it will be a process that is fluid and opaque, but we will do our best to keep track of things as these important pieces of legislation move forward toward being signed into law.