Surprise: Possible Climate/Tax/Health Care Reconciliation Measure After All

Hurdles remain, including Sen. Sinema’s position and House Democrats

Centrist Sen. Joe Manchin (D-W.Va.) went from being his party’s main holdout on expansive social policy, climate and tax legislation, and instead struck a deal on a domestic spending package that includes climate and energy programs and tax increases.

     No official word yet on what changed Manchin’s mind about the package because previously he said he wanted to wait for more information on inflation. As part of the agreement, Senate Majority Leader Chuck Schumer (D-N.Y.) and House Speaker Nancy Pelosi (D-Calif.) agreed to pass legislation governing energy permits. Manchin said he spoke to Schumer, Pelosi and President Joe Biden on Wednesday.

     In a statement, Manchin confirmed his support for the measure. He signaled support for climate and energy programs, as well as some tax provisions, all of which he had previously suggested he could not support because of concerns about inflation. “Rather than risking more inflation with trillions in new spending, this bill will cut the inflation taxes Americans are paying, lower the cost of health insurance and prescription drugs, and ensure our country invests in the energy security and climate change solutions we need to remain a global superpower through innovation rather than elimination,” Manchin said.

     President Biden said in a statement that he supports the agreement and called for its passage. “This is the action the American people have been waiting for. This addresses the problems of today — high health care costs and overall inflation — as well as investments in our energy security for the future,” he said. “If enacted, this legislation will be historic, and I urge the Senate to move on this bill as soon as possible, and for the House to follow as well,” Biden added.

     A name change: Manchin labeled the bill the Inflation Reduction Act of 2022, rather than any version of “Build Back Better” or “Build Back Manchin.” Manchin said “Build Back Better is dead, and instead we have the opportunity to make our country stronger by bringing Americans together. I will do everything I can to usher in a new era of compromise and common sense that will make America more energy secure, financially sound and a more united country for this generation and the next.”

     Some details:

• The provisions would invest $369.75 billion in Energy Security and Climate Change programs over 10 years.
• Proponents said the package would cut about 40% of the country's carbon emissions by 2030.
• Package would raise a total of $739 billion in revenue through programs including a 15% corporate minimum tax, prescription drug pricing reform and IRS tax enforcement. The bill would impose a 15% corporate minimum tax, while raising taxes on carried interest, and raising another $124 billion through IRS tax enforcement. Families making less than $400,000 per year would not be affected. Democrats say it would reduce the deficit by $300 billion.
• Besides climate spending, the bill will also spend $64 billion on extending the Affordable Care Act (ObamaCare) subsidies through the 2024 election and the first term of Biden’s presidency, taking a big political headache off the table for Democrats. Manchin said that “helps people because you just can’t throw [increases] on them during inflammatory times like this.”
• For the first time, Medicare would be empowered to negotiate drug prices, something Democrats say would raise $288 billion, and it would cap out-of-pocket costs at $2,000 for drugs.
• Manchin said the final deal does not leave out new incentives for electric vehicles, which he’d resisted in what became a major sticking point in the negotiations. Manchin said the bill gives incentives to make new car batteries in America “and not only be able to assemble them but be able to extract the minerals that we need, critical minerals, in North America.” The deal includes a methane fee as well as a $4,000 tax credit for the purchase of used electric vehicles. The bill also includes efforts to make fossil fuels cleaner, Manchin said, and to increase production to help American allies amid Russia’s invasion of Ukraine, which has limited European fuel supplies.
   

     It does not include surtaxes on people making more than $10 million a year, ending a push by most Democrats to impose higher rates on the wealthy; nor does it include a global tax deal.

     Unknown is if the language includes incentives for the production of Sustainable Aviation Fuel (SAF). 

     Were Senate Republicans duped? The timing of the announcement came after the Senate passed a “scaled-down” bill aimed at boosting U.S. competitiveness against China. Recall that Senate Minority Leader Mitch McConnell (R-Ky.) threatened to tank "CHIPS-plus" if Democrats pursued a robust reconciliation deal with Manchin. “You think we got sucker-punched?” Sen. John Cornyn (R-Texas) joked in remarks to reporters. The China competitiveness bill passed with bipartisan support in a 64-33 vote. Sen. Lindsey Graham (R-S.C.) said in a statement he couldn’t believe Manchin was “agreeing to a massive tax increase in the name of climate change when our economy is in a recession.” Manchin said he understands that the legislation will divide Washington and potentially reshape his reputation.

     Now what? Schumer held a call Wednesday evening with committee chairs who have jurisdiction over climate as well as senators focused on the issue. Democrats are aiming to pass the bill through budget reconciliation next week. That will allow the party to act without Republican buy-in, bypassing a likely GOP filibuster. Democrats will need the support of all their members in the 50-50 Senate. Also, the measure must meet Senate chamber rules for avoiding a filibuster, and Sen. Kyrsten Sinema (D-Ariz.) hasn’t signed off yet. "We do not have a comment, as she will need to review the text," a Sinema spokesperson said. The package includes some $14 billion in new revenue from taxing carried interest, which Sinema has indicated she opposes. Sinema last December supported the 15% corporate tax rate.

     How the bill plays in the House is also important. Progressives were elated, with Rep. Pramila Jayapal (D-Wash.) calling it a “really important victory.” And moderate Rep. Josh Gottheimer (D-N.J.), who made state and local tax relief his red line, was noncommittal. “Until I see specifics it’s hard to know.”