Senator Joe Manchin and Majority Leader Chuck Schumer have struck a deal on a tax, energy and climate bill, breaking a deadlock on the Democrats’ long-sought legislation to enact major parts of President Joe Biden’s agenda.
The plan, announced by the two Democrats on Wednesday evening, would generate an estimated $739 billion in revenue, spend $433 billion and reduce deficits by $300 billion over a decade. That’s still much smaller than the Biden administration’s plans before encountering Manchin’s repeated opposition.
Revenue would come from a 15% corporate minimum tax, allowing Medicare to negotiate drug-price cuts, and from boosting tax enforcement by increasing the Internal Revenue Service budget. The package would raise $14 billion from taxing carried interest, or profits made by some investment managers, at a higher rate.
The surprise agreement hit just hours after the Federal Reserve announced another 75 basis-point hike in interest rates, furthering its campaign to rein in the fastest inflation in four decades. Schumer and Manchin billed their plan as aimed at stabilizing prices, though economists have said smaller-scale fiscal measures are unlikely to have much impact.
The two lawmakers said in a joint statement that the Senate would vote on the legislation next week.
The package is a substantial reduction from the $3.5 trillion Build Back Better agenda that congressional Democrats discussed a year ago, which was whitled down to a House-passed $2.2 trillion bill.
Still, just weeks ago plans to salvage some parts of Biden’s agenda were at a standstill. The current deal represents a partial reversal of Manchin’s position earlier this month, when he told Schumer he couldn’t support a package of climate change measures and tax increases because of rising consumer prices after inflation hit 9.1% and wanted to wait until September to act .
It also is a major strategic win for Schumer. It was announced just hours after the Senate passed a $52 billion semiconductor industry subsidy bill on a bipartisan basis. Senate Republican leader Mitch McConnell had threatened to block that legislation if Democrats went through with their partisan tax and climate package. He relented after Manchin balked because of his inflation concerns.
The agreement came about after Manchin approached Schumer on July 18 to restart their negotiations, which continued until the deal struck on Wednesday, according to a person familiar with the matter.
“Democrats have already crushed American families with historic inflation”. Now they want to pile on giant tax hikes that will hammer workers and kill many thousands of American jobs,” Senate GOP leader Mitch McConnell tweeted. “First they killed your family’s budget. Now they want to kill your job too.”
Manchin said in his statement he supports increasing IRS enforcement and ending the carried interest tax break that is used by private equity fund managers to cut their tax bills.
He said he backs a 15% domestic corporate minimum tax, which Biden has previously proposed, but that it should only apply to the largest US companies that are worth at least $1 billion. Manchin did not make any reference to the 15% global minimum tax that Treasury Secretary Janet Yellen helped broker with nearly 140 countries last year.
Manchin opposed expanding the state and local tax, or SALT, deduction that several House Democrats from New York and New Jersey have said is a priority. The deal also excludes a surtax on millionaires and tax on stock buybacks that Schumer was pushing for earlier in the month.
The agreement would provide $369 billion for “energy and climate change” according to a one-page summary. On the traditional-energy side, Manchin said Biden, Schumer and House Speaker Nancy Pelosi had agreed to advance permitting reforms that could benefit fossil fuel producers. On the other, the deal would include electric vehicle tax credits sought by automakers like Tesla and Toyota, including a credit for used vehicles for the first time.
Subsides for Obamacare premiums would also be extended for three years.
Before the Senate can vote, the parliamentarian must determine if all the provisions comply with Senate budget rules to allow Democrats to pass the bill with just 50 votes, bypassing a Republican filibuster by using what’s known as the budget reconciliation process.
Every member of the Democratic caucus would need to vote for the deal for it to pass by a simple majority in the 50-50 Senate, and that has made Manchin, who represents a solidly Republican state, a linchpin in negotiations.
Another key Democratic vote is Senator Kyrsten Sinema of Arizona. She has in the past declined to support ending the carried-interest tax break.
Asked whether she would vote for the agreement, a spokeswoman for the Arizona lawmaker said that she has not made a decision yet.
“Senator Sinema will need to review the text,” said her press secretary, Hannah Hurley. “We don’t have a comment at this time.”
The Biden administration isn’t sure yet if Sinema will back the bill, officials familiar with the matter said, though one said provisions in the deal are built largely around things she has signaled support for.
In a sign of caution, Biden considered giving a speech Wednesday night after the deal was announced — before deciding against it. He is considering whether to give one Thursday, an official said.
The House is about to go on its August break, but Democratic leaders said the chamber would be called back to session if the Senate approves the Schumer-Manchin plan next week.
Progressive Democrats, who just weeks ago said Manchin was destroying the planet by obstructing the Biden agenda, embraced his latest move.
“This is a day for us to have a little bit of hope,” said top House progressive Pramila Jayapal of Washington. “It would be life changing for people around the country and around the world.”
— With assistance from Laura Litvan, Billy House and Josh Wingrove