By any measure, this has been an eventful year on the budget front. As 2021 draws to a close, however, it is apparent that much of 2022 will be devoted to a substantial agenda of unfinished business left over from 2021, even as new challenges—from stubbornly high inflation to the rapidly spreading Omicron variant—loom.

Hurdles Cleared in 2021

In March, just seven weeks after his inauguration, President Biden signed into law the massive $1.9 trillion COVID relief measure, the American Rescue Plan Act, H.R.1319. The bill provided an expanded safety net to millions of Americans struggling from the medical and economic fallout of the then year-old pandemic. Yet, the lack of sufficient targeting for the fiscal jolt provided by the bill contributed to an inflationary burst that the administration and the Federal Reserve no longer define as “transitory.” For the first time in many decades, inflation-fighting will be on the agenda in 2022.

The White House secured a surprising bipartisan win in August when the Senate passed the Infrastructure Investment and Jobs Act (IIJA, H.R.3684), an historic downpayment on critical transportation, broadband, and safe drinking water programs, but Democrats were not yet finished. Progressive House members withheld their support of the IIJA for months as leverage while negotiating terms of the social spending and climate change provisions in the Build Back Better Act (BBBA).  Eventually they relented, passing the infrastructure bill in November and sending it to President Biden for his signature, with the understanding that the final version of the BBBA would reflect their priorities. With that outcome now in doubt (see more below) a substantial rift within the Democratic party seems likely to complicate 2022 legislative negotiations.

Democrats also managed to avoid a government shutdown (twice, in September and December) and a potentially cataclysmic debt default (also twice; the second time punting the issue past the 2022 elections). These may seem like low bars to clear, but after two shutdowns under the prior administration (one lasting 34 days), and former President Trump’s flirtation with Treasury default, quietly maintaining federal government operations and a fully functioning market for U.S. Treasury securities amidst partisan obstruction is a reason to celebrate.

Hurdles Remaining in 2022

Biden and Congressional Democrats will have a lot on their plate in 2022 but because of the November midterm elections, their agenda will be hamstrung by an abbreviated legislative calendar. Setting aside BBBA for a moment, not only must Congress complete work on full-year appropriations for FY 2022 (which will be nearly half over by the time the next stopgap funding bill expires) but Biden must also submit an FY 2023 budget to Congress (which probably will be tardy) and fund the federal government for FY 2023.

In addition, a number of individual and business tax extenders expire at the end of 2021 that will demand attention, including the Democrats’ expanded Child Tax Credit. Tax extenders typically ride sidecar with an end-of-year omnibus appropriations bill, but if Republicans and Democrats can’t agree on funding levels for FY 2022, tax extenders could languish.

As for BBBA….

Like Schrodinger’s Cat, the Build Back Better Act is Both Alive and Dead

A famous thought experiment in quantum physics describes a scenario where a cat inside a sealed box is simultaneously alive and… not alive. Scientific theory fails to predict the kitty’s status because two mutually exclusive outcomes are possible at the same time. The only way to reveal the truth is to open the box and observe the feline’s swishing tail.

President Biden’s Build Back Better Act is a lot like Schrodinger’s cat—both alive and dead—and until we open the box (tally the votes), we won’t really know which is true.

Statements by West Virginia Senator Joe Manchin on Sunday in opposition to the BBBA lit up the political world and certainly seemed to doom the measure. The uncharacteristically scorched earth White House press release issued afterwards seemed to poison the well further, placing doubts on whether negotiations could be resurrected in the new year. The media’s coverage resembled a funeral dirge, “Requiem for Build Back Better.”

Yet before the day was over, Biden and Manchin were already in touch by phone, attempting to soothe ruffled feathers and promising to discuss legislative priorities after the holiday. Since Monday, influential policy experts have flooded Twitter and other social media platforms with new ways to redesign the Child Tax Credit, provide a full decade of universal pre-k, lower health care and prescription drug costs, and address other concerns from Senator Manchin. Is there new life in BBBA or is this just magical thinking among a subset of Democrats?

While it seems highly unlikely that Biden will be able to unite the very disparate House and Senate Democrats behind a single Build Back Better bill, it is equally inconceivable that the measure will fail. True, the Venn diagram of policies that unify the Manchin-Sinema and Sanders-Warren wings of the Democratic party appears woefully empty, but without the BBBA, Democrats will have little progress to show on their highest priorities heading into the treacherous 2022 midterm elections. Negotiations thus seem destined to resume.

If BBBA talks are resurrected, Democrats should recognize that two elements of the House-passed bill are incompatible with legislative victory—the desire to implement truly transformational policies and President Biden’s promise not to raise taxes on households earning less than $400,000. Why? Because trying to squeeze a nearly $5 trillion agenda into $2 trillion in politically palatable payfors resulted in budget gimmicks that wrongfully hid the legislation’s true cost—and ultimately became the measure’s fatal flaw.

President Biden will give his State of the Union address at the end of January. It is an occasion when many presidents renew their legislative priorities and enjoy a victory lap in celebration of those already accomplished. Biden’s list of successes isn’t empty but it is short and tempered with new challenges. Congressional Democrats may redouble their efforts to pass some version of the BBBA (likely slimmed and shorn of its gimmicks) and send it to the president before his big speech.