Infrastructure Talks Stall Over Expanded IRS Powers

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WASHINGTON—Disagreements over expanding the Internal Revenue Service have snarled lawmakers’ efforts to firm up their roughly $1 trillion bipartisan infrastructure agreement before an initial vote next week gauging the deal’s support.

In an hourslong meeting Thursday afternoon with White House officials, Republicans and Democrats who have spent weeks negotiating the deal again grappled with how to pay for it. Lawmakers and aides said the group may abandon an effort to raise revenue through enhanced enforcement at the IRS after some Republicans said they were concerned about granting the tax agency new power.

Dropping that proposal would mean the group would need to find alternative ways to cover the full cost of the spending, roughly $600 billion of which is above projected future federal spending on roads, bridges, and water projects. Republicans had already questioned whether the plan would be fully paid for through a mix of repurposed federal funds, IRS enforcement, and public-private partnerships.

“We’ve got a long way to go, payfors are still a big part of this that we really don’t have resolved yet,” said

Sen. Mike Rounds

(R., S.D.), one of the 11 Republicans who had previously endorsed the contours of the agreement. Eleven members of the Democratic caucus also have previously signed onto the deal, which a smaller group of lawmakers and President Biden first announced last month.

Prodding the bipartisan lawmakers to close out their agreement, Senate Majority Leader

Chuck Schumer

(D., N.Y.) said Thursday that he would hold a procedural vote on the infrastructure agreement on Wednesday.

The $1 trillion bipartisan infrastructure package and the $3.5 trillion Democratic healthcare and antipoverty plan will face obstacles as they make their way through Congress in tandem. WSJ’s Gerald F. Seib explains. Photo illustration: Laura Kammermann

Mr. Schumer also set a Wednesday deadline for Democrats to reach an agreement on a $3.5 trillion blueprint for approving much of President Biden’s legislative agenda, including investments in child care, education, and healthcare programs. Top Democrats have linked the two pieces of legislation, hoping to keep Democrats unified behind both efforts while attracting Republican support for the infrastructure plan.

“Everybody has been having productive conversations, and it’s important to keep the two track process moving.” Mr. Schumer said. “All parties involved in the bipartisan infrastructure bill talks must now finalize their agreement so that the Senate can begin considering that legislation next week.”

It wasn’t clear Thursday whether the bipartisan group would be able to resolve its major differences by next week’s deadline.

“I don’t know if we’ll make anybody’s arbitrary timeline. That’s not the point,” said

Sen. Rob Portman

(R., Ohio). “The point is to get it right.”

The Wednesday procedural vote on the infrastructure agreement will provide an early test of support for the pact, which will need 60 votes to pass in the 50-50 Senate.

Sen. Mitt Romney

(R., Utah), one of the infrastructure negotiators, said he would vote against the procedural vote if lawmakers had not reached an agreement by then. “I would think it would be a dereliction of duty to vote for a bill that hasn’t been drafted yet,” he said.

Lawmakers said they would work through the weekend to try to finish their remaining issues by the Wednesday deadline. “Everybody’s hanging in here,” said

Sen. Joe Manchin

(D., W.Va.).

The Biden administration had initially proposed investing roughly $80 billion in the IRS and requiring financial institutions to report more information to the government as a way to bring in an estimated $700 billion in revenue over 10 years. A Treasury Department report earlier this year projected that the gross tax gap—the difference between taxes owed and taxes collected—will be $7 trillion cumulatively over the next decade.

The bipartisan infrastructure plan had initially settled for a narrower plan, with Republicans earlier discussing putting roughly $40 billion into enforcement efforts at the IRS to net roughly $60 billion in revenue over 10 years. Republicans have opposed the administration’s proposed reporting requirements and questioned its estimates for how much revenue enhanced enforcement can generate for the government.

Democrats are discussing approving other elements of the Biden administration’s IRS proposals as part of their $3.5 trillion package, which they hope to pass along party lines through a process called reconciliation. Reconciliation allows lawmakers to avoid the 60-vote threshold required for most legislation in the Senate.

Reaching an agreement on the $3.5 trillion top-line figure for the reconciliation legislation will be the first step in a long path toward translating Democratic policy ambitions into law.

Democrats will need to approve a budget resolution setting the broad parameters of the legislation. Then they will turn to crafting the specifics of those policy proposals—and the tax increases they have proposed to pay for them—before attempting to approve the full package.

Mr. Schumer has said he hopes lawmakers both approve the bipartisan infrastructure bill and the budget resolution for the $3.5 trillion plan in the coming weeks.

Write to Andrew Duehren at andrew.duehren@wsj.com and Kristina Peterson at kristina.peterson@wsj.com

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