Sen. Joe Manchin III, D-W.Va., and Majority Leader Charles E. Schumer, D-N.Y., have agreed to a reconciliation package that would set the corporate minimum tax at 15 percent and ramp up IRS enforcement while financing climate programs and cutting the budget deficit.
Schumer said the text for the new bill, named the Inflation Reduction Act of 2022, will be submitted to the parliamentarian the evening of July 27 and go to the Senate floor the week of August 1.
“The bill will finally allow Medicare to negotiate for prescription drugs and lower health care costs for millions of Americans,” Schumer said in a statement. “The investments will be fully paid for by closing tax loopholes on wealthy individuals and corporations.”
The lawmakers provided few details about the legislation, but said the Joint Committee on Taxation has estimated that the package would draw $313 billion from the new corporate minimum tax, $288 billion from prescription drug pricing reform, $124 billion from IRS tax enforcement, and $14 billion from raising taxes on carried interest income earned by investment managers.
Those figures are either exactly or within a few billion dollars of the scores given to similar items in the House-passed Build Back Better bill (H.R. 5376), House Ways and Means Chair Richard E. Neal, D-Mass., said.
More than $300 billion of that revenue would go toward reducing the deficit — a priority in negotiations for Manchin.
“It is past time for America to begin paying down our $30 trillion national debt and get serious about the record inflation that is crushing the wages of American workers,” Manchin said in a statement.
The senators propose using $369 billion to address the climate crisis and energy security and $64 billion to extend Affordable Care Act health premium subsidies for three years.
But a couple of key items for Democrats were left out too. The apparent lack of a provision to roll back the $10,000 state and local tax deduction cap could be a problem, Neal said. Manchin has been against a rollback, which would mainly favor wealthy taxpayers in high-tax, high-income blue states.
“That creates a challenge for members of our caucus over here,” Neal said of that apparent lack of a SALT provision.
Another potential problem is the inclusion of the carried interest proposal, which had been struck from the House bill in November 2021 because of opposition from another Senate centrist, Sen. Kyrsten Sinema, D-Ariz.
While slashed downward from the roughly $2 trillion in tax provisions in the House-passed version of reconciliation, the Manchin-Schumer agreement added $57 billion in energy-related tax credits compared with the House-passed bill. That caught Neal’s attention, although he noted that he hasn’t seen the specifics of the Senate proposal.
“In the tax world, it’s the specifics that count,” Neal said.
This Is Not Build Back Better
The development otherwise marks a significant victory for Democrats and President Biden, who had seemed to concede defeat earlier in the month on any climate and tax legislation.
Manchin said July 15 that he couldn’t agree to such provisions until July inflation statistics come out in mid-August, effectively forcing Senate Democrats to accept an ultra-skinny health package that only included lowering prescription drug costs and extending ACA subsidies for two years.
Now the centrist from West Virginia is prepared to move forward on a bill that he argues is drastically different from the original Build Back Better Act and is primarily geared toward fighting record-setting inflation.
“For too long, the reconciliation debate in Washington has been defined by how it can help advance Democrats’ political agenda called Build Back Better,” Manchin said, “Build Back Better is dead, and instead we have the opportunity to make our country stronger by bringing Americans together.”
He said the bill would make investments in hydrogen, nuclear, and renewable energy, as well as fossil fuels produced in the cleanest way possible — steps that would reduce carbon emissions by 40 percent by 2030, according to a summary.
The legislation would cap out-of-pocket Medicare costs to $2,000 while preserving President Biden’s promise not to raise taxes on Americans making less than $400,000.
The 3.8 percent net investment income tax on passthrough taxes is still out of the bill.
Many details remain undisclosed. Chief among them is whether the $124 billion in raised revenue from IRS enforcement includes the significant investment in beefing up the agency that was in Biden’s initial social policy package.
Senate Finance Committee Chair Ron Wyden, D-Ore., for one, has consistently referenced with reporters an original Build Back Better Act proposal that would provide the agency with $80 billion in new funding and raise $207 billion over 10 years through increased auditing, for a net of $127 billion in revenue.
“I was asked by Joe what kind of reaction I was getting,” Wyden said in reference to conversations he had with the president on the IRS enforcement proposal. “My short take is nothing but positive on the general proposition of IRS tax enforcement so that wealthy cheats pay what they owe.”
Sleight of Hand
The news was extraordinarily welcome, and in some cases completely surprising, to Democrats who had labored over the legislation for months only to see it derailed twice.
Biden chimed in shortly after the news to applaud the effort, saying that Americans have been waiting for Congress to deal with high healthcare costs, energy security, and inflation.
“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 said in the July 27 statement.
And Finance Committee member Sheldon Whitehouse, D-R.I., a proponent of policies that address climate change, commended Schumer for his due diligence and persistence in drafting energy policies that would make a difference for future generations.
“This is a very hopeful moment,” he said. “Democrats are about to take the biggest, most serious step in congressional history to lead our planet against climate change.”
The quick turnaround, however, prompted some to speculate that such a reconciliation package was in the works all along, and that Democrats had pretended the social policy was dead only to convince Senate Minority Leader Mitch McConnell, R-Ky., to lift his embargo on the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act (H.R. 4346).
“Let me be perfectly clear: there will be no bipartisan USICA as long as Democrats are pursuing a partisan reconciliation bill,” McConnell said in a June 30 tweet. Mere hours after the Senate passed semiconductor legislation that includes $24 billion in investment tax credits, reconciliation was back on the table.
Rep. Pramila Jayapal, D-Wash., who heads the 90-member-plus Congressional Progressive Caucus, is cautiously optimistic about the reconciliation bill's prospects.
“If we can get this done quickly, this will make everything we’ve gone through worthwhile,” Jayapal said.
Jayapal said her caucus will not hold up the competition bill sent July 27 to the House, linking movement on that bipartisan bill to a partisan reconciliation package. That’s what her caucus unsuccessfully did last fall when it tried to delay a bipartisan infrastructure bill and link it to movement on reconciliation.
“No, we’re not doing that,” she said. “We’re going to pass the CHIPS bill; it’s got really good stuff in it.”