Sen. Joe Manchin (D-W.Va.) said Wednesday he’s reached a deal with Senate Majority Leader Chuck Schumer (D-N.Y.) on a sweeping $740 billion package to increase taxes on the wealthy and invest in climate and health care while also reducing the deficit.
The agreement, now dubbed the Inflation Reduction Act, has the blessing of the White House and rescues much of the Democratic domestic policy agenda from the trash heap Manchin seemed to put it in just two weeks ago.
“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 in a lengthy statement.
The deal took official Washington by surprise ― Manchin has been at home in West Virginia this week recovering from COVID-19, and Democrats seemed set to accept a smaller health-care focused offer from Manchin. On Wednesday night, Republicans were seething over the deal’s timing while Democrats scrambled to figure out its contents.
Democrats are racing to pass the measure before the Senate leaves town for its annual monthlong recess in order to stave off health insurance premium increases that are scheduled to kick in that month. House Democrats have indicated they’re prepared to come back from their own August recess to pass a reconciliation bill.
Final details or text of the legislation were not yet available, but Schumer and Manchin outlined the broad strokes of the agreement.
The proposal would raise $740 billion by instituting a 15% minimum corporate tax rate; beefing up the Internal Revenue Service’s enforcement of tax laws on the ultra-wealthy; narrowing the carried interest loophole, which allows hedge fund managers and other wealthy investors to pay lower taxes; and requiring Medicare to negotiate the prices of some drugs directly with manufacturers, leveraging the social insurance program’s massive buying power to wring savings from drugmakers.
It then spends a historic $369 billion on “energy security and climate change,” which Democrats say will be enough to cut carbon emissions in the United States by 40% before 2030, and puts $64 billion toward extending subsidies for the Affordable Care Act for three years. The remaining $300 billion will go toward reducing the deficit, a priority for Manchin.
The new proposal would also cap a Medicare patient’s out-of-pocket expenses at $2,000 per year.
The bill’s passage is not yet a sure thing. Senate Democrats’ other moderate standout, Kyrsten Sinema (Ariz.), has indicated she needs to review legislative text before making a decision. And a group of House Democrats from New York and New Jersey have said they’ll refuse to support any deal that doesn’t restore the federal tax deduction for paying state and local income taxes.
Manchin explicitly rules out restoring the deduction in his statement: “Our tax code should not favor red state or blue state elites with loopholes like SALT,” he said, referring to it by the acronym for “state and local tax.”
Business-friendly Rep. Josh Gottheimer (D-N.J.), who is leading the group demanding the restoration of SALT, was noncommittal Wednesday night.
“I’ve got to understand the impact it has on families in my district,” he told Politico. “Until I see specifics, it’s hard to know.”
Republicans are expected to line up against the legislation, so Democrats will use a legislative maneuver called reconciliation to pass the bill through the Senate with only 50 votes. In the House, Democrats will only be able to lose support from four members of the 220-member caucus.
“Senate Democrats can change the name of Build Back Broke as many times as they want, it won’t be any less devastating to American families and small businesses,” said Sen. John Cornyn (R-Texas), referring to Biden’s “Build Back Better” plan.
The plan is also expected to generate fierce opposition from the U.S. Chamber of Commerce and other business lobbyists.
The legislation remains far smaller than the $4 trillion Build Back Better plan that President Joe Biden initially unveiled in the spring of 2021, and many of its potentially game-changing proposals ― tuition-free community college, subsidies for child care and an expanded monthly child tax credit ― have been thrown aside.
But Democrats, facing a midterm election this fall shaped by Biden’s low approval ratings and high inflation, are likely to jump at the deal.
“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,” Biden said in a statement endorsing the proposal.
The agreement is also a win for the United States on the global stage. The 15% minimum corporate tax rate means companies like Amazon will pay 15% in taxes regardless of what tax credits and deductions they get ― a priority for Treasury Secretary Janet Yellen, who negotiated a global deal to implement a minimum rate and limit the power of international tax havens.
And the climate investments should help the United States gain credibility as it negotiates global deals to limit carbon emissions.
Environmental groups, which have long been suspicious of Manchin because of his extensive ties to the coal industry, were cautiously optimistic about the deal.
“We look forward to reviewing the bill in detail to assess whether it lives up to President Biden’s commitments on climate and environmental justice,” said Jamal Raad, the executive director of Evergreen Action, which was founded by alumni of Washington Gov. Jay Inslee’s climate-focused Democratic presidential campaign. “We know we cannot meet our international climate commitments nor the president’s environmental justice commitments without significant federal clean energy investments.”
Schumer briefed climate-focused members of the Democratic caucus on Wednesday night, and both Sens. Sheldon Whitehouse (D-R.I.) and Brian Schatz (D-Hawaii) quickly backed the agreement.
“I am pleased to report that this will be, by far, the biggest climate action in human history,” Schatz said in a statement. “Nearly $370 billion in tax incentives, grants, and other investments in clean energy, clean transportation, energy storage, home electrification, climate-smart agriculture, and clean manufacturing makes this a real climate bill. The planet is on fire. Emissions reductions are the main thing. This is enormous progress. Let’s get it done.”
In his statement, Manchin did not directly explain his seeming about-face, and he took credit for killing parts of the broader Democratic agenda.
“For too long, the reconciliation debate in Washington has been defined by how it can help advance Democrats’ political agenda called Build Back Better,” he said. “Build Back Better is dead, and instead we have the opportunity to make our country stronger by bringing Americans together.”
A top Manchin aide noted the West Virginian had said he would continue to negotiate on a broader package.
Manchin “repeatedly said he wasn’t walking away from the table and he understood the importance of these negotiations,” Sam Runyon, Manchin’s communications director, wrote on Twitter. “Today’s announcement is not a reversal of anything,”
Notably, the announcement of the deal came just hours after the Senate passed a bill to subsidize U.S.-made semiconductor chips, a bipartisan win for the White House.
Senate Minority Leader Mitch McConnell (R-Ky.) had threatened to withhold GOP votes for the previously bipartisan semiconductor bill unless Democrats promised not to go forward with a party-line tax and climate package.
But McConnell’s threat seemed moot after Manchin indicated earlier this month he would only accept a smaller package. So this afternoon, the Senate voted 64-33 to pass the legislation.
Only a few hours later, Manchin announced he was on board with a reconciliation package.
Amanda Terkel contributed reporting.