Democrats Announce Economic Deal Investing in Energy and Health Care
Senate Majority Leader Chuck Schumer, 2013. (Gregory Hauenstein/Flickr)
On July 18, Senate Majority Leader Chuck Schumer announced that he and moderate Democratic Senator Joe Manchin had compromised on a new economic bill. Named the “Deficit Reduction Act of 2022,” this bill will extend Medicare subsidies and tackle climate change, among other things. While not as comprehensive as the Build Back Better bill, the Deficit Reduction Act, if passed, would be a major win for Democrats before midterm elections in November.
Manchin Makes a Deal
News of the deal came as a shock to the Senate, especially considering Manchin and Schumer had a heated disagreement in July over the former economic bill, with Manchin saying he “unequivocally” would not support its climate and tax provisions. Both of these ended up being key components of the compromise bill.
Republicans, however, were especially surprised. The announcement came just hours after the CHIPS Act―which provided financial assistance to semiconductor companies―passed with 14 Republican votes, many of whom later stated that they would not have voted for the CHIPS Act had they known that the Democrats were planning an economic bill of this scale. Republican Senator John Corryn, who was instrumental in passing the CHIPS Act in the Senate, said he had been falsely reassured by Democrats that “the tax and climate provisions were off the table.” “How can we negotiate in good faith, compromise where necessary, and get things done together after the majority leader and the senator from West Virginia pull a stunt like this?” he said. “To look you in the eye and tell you one thing and to do another is absolutely unforgivable.”
Understanding the Deficit Reduction Act
One of the key parts of the Deficit Reduction Act is its investments in combating climate change. The bill would invest nearly $369 billion into energy and climate change programs, extend clean air tax credits until 2025, and allow solar providers to choose between production tax credit and investment tax credit based on their individual needs. Manchin explained that the goal was to reduce carbon emissions by 40 percent by 2030, which would be in line with the nationally determined contributions target set under the Paris Climate Accords.
Another major part of the Deficit Reduction Act is its work with Medicare. Most notably, the bill would extend Affordable Care Act subsidies through 2024. Originally set to expire at the end of the 2022 coverage year, just before midterm elections, this extension would help Democrats avoid a major spike in health insurance costs right before facing reelection. The bill would also allow Medicare to negotiate the prices of certain medications (20 different drugs by 2029), a move that the Congressional Budget Office (CBO) predicts would save $288 billion over a decade.
Finally, the bill would include various measures to decrease the deficit, as its name suggests. Included in the legislation is a 15 percent minimum corporate tax, which could raise $202.7 billion in the next decade. The bill also includes increased funding for the Internal Revenue Service, which could raise $124 billion over a decade, and a provision to close the carried interest loophole, which would raise another $14 billion. In total, the deal is expected to reduce the deficit by more than $300 billion.
However, many Republicans fear that the bill will raise taxes on regular Americans. “The mislabeled ‘Inflation Reduction Act’ will do nothing to bring the economy out of stagnation and recession, but it will raise billions of dollars in taxes on Americans making less than $400,000,” said Senator Mike Crapo, the Republican ranking member of the Senate Finance Committee. He cited a Congressional Joint Committee on Taxation study that found the bill could cause taxes to jump by $16.7 billion for those making less than $200,000 and $14.1 billion for those making between $200,000 and $500,000. However, Democrats such as Finance Chair Ron Wyden have consistently reiterated that families “will not pay one penny in additional taxes under this bill.” Ashley Schapitl, Senator Wyden’s spokesperson, said the Joint Committee on Taxation analysis wasn’t complete because “it doesn’t include the benefits to middle-class families of making health insurance premiums and prescription drugs more affordable. The same goes for clean energy incentives for families.”
The Road Forward
Despite Republican objections, Democrats plan to push forward with the bill, hoping to bring it to the floor for a vote within a week. To avoid the 60-vote threshold needed to overcome a filibuster, Democrats plan to use a process called reconciliation that allows them to proceed with a simple 51-vote majority. However, to do this, they would need to get every Democrat to vote yes, and moderate Senator Kyrsten Sinema has yet to make her position on the bill clear.
Senator Krysten Sinema, 2018. (Gage Skidmore/Flickr)
After the bill was announced on Wednesday, Sinema’s spokesperson Hannah Hurley said “she’s reviewing the bill text and will need to see what comes out of the parliamentarian process,” but does not have immediate comments. Many provisions in the bill, such as the investments into combating climate change, Sinema has previously supported. However, some provisions, specifically closing the carried interest loophole, she has adamantly opposed. While several Senators and lobbying firms from both sides have reached out to her office since Wednesday, James Maloney, a managing partner at the lobbying firm Tiger Hill Partners, said, “She will likely make a decision on carried interest on her terms and not political pressures from the party. . . . Self-determination is the one consistency to her seemingly unique style of decision making.”
Still, Democrats are hopeful that Sinema will eventually come to vote for the bill. Manchin, who has been engaged in talks with Sinema since Wednesday, told reporters she is “extremely bright. She works hard. She makes good decisions based on facts. I’m reliant on that.” Even if Sinema does object to closing the carried interest loophole, it could easily be stripped from the bill without large consequences. However, Manchin made it very clear that her vote is ultimately her decision. “Kyrsten Sinema’s a friend of mine, and we work very close together,” he said. “And I would like to think she would be favorable towards it, but I respect her decision. She’ll make her own decision based on the contents.”
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