Sen. Joe Manchin and Majority Leader Chuck Schumer have reached an agreement on a tax, energy and climate bill, ending a stalemate on legislation long sought by Democrats to enact key parts of President Joe Biden’s agenda. The plan, announced by both Democrats, would generate about $739 billion in revenue, spend $433 billion and cut deficits by $300 billion over a decade. That’s actually still much smaller than the Biden administration’s plans before meeting repeated opposition from Manchin.
The revenue would be derived from a 15% minimum corporate tax, allowing Medicare to negotiate drug price reductions, and to strengthen tax enforcement by increasing the Internal Revenue Service budget. The package would raise $14 billion by taxing carried interest, or profits earned by some investment managers, at a higher rate.
The surprise deal came just hours after the Federal Reserve announced another 75 basis point increase in interest rates, continuing its campaign to contain the fastest inflation in four decades. The package is a significant reduction from the $3.5 trillion Build Back Better program that congressional Democrats discussed a year ago, which was scaled back to a $2.2 trillion bill was passed by the House.
Yet just a few weeks ago, plans to rescue parts of Biden’s agenda were stalled. The current agreement represents a partial reversal of Manchin’s position earlier this month, when he declared to Schumer that he could not support a climate change and tax increase package.
It was also a major policy victory 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 stop the legislation if Democrats passed their partisan tax and climate package. He caved in after Manchin wavered due to his inflation concerns.
The deal came after Manchin approached Schumer on July 18 to resume their negotiations, according to a person close to the matter. The deal would provide $369 billion for “energy and climate change.” On the traditional energy side, Manchin said Biden, Schumer and House Speaker Nancy Pelosi agreed to move forward with permitting reforms that could potentially benefit fossil fuel producers. On the other hand, the deal would include tax credits for electric vehicles sought by automakers like Tesla and Toyota, including a credit for first-time used vehicles. Obamacare premium subsidies would also be extended for three years.
Every Democrat would have to vote for the deal to be adopted by a simple majority in the Senate, and that made Manchin a linchpin of the negotiations. Another pivotal Democratic vote is Senator Kyrsten Sinema of Arizona. She has previously refused to support ending the carried interest tax break. When asked if she would vote for the deal, a spokeswoman for the lawmaker said she had not yet made a decision.
The House is on the verge of an August break, but Democratic leaders have said the chamber would be called back into session if the Senate approves the plan next week.
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