In a surprise announcement late on July 27, Sen. Joe Manchin (D-W.Va.) revealed he and Senate Majority Leader Chuck Schumer (D-N.Y.) have reached an agreement on a slimmed-down version of a reconciliation bill, titled the Inflation Reduction Act of 2022 (the Act).
Over the last year, Manchin has been Senate Democrats’ primary holdout from enacting President Joe Biden’s ambitious agenda. There have been three distinct reconciliation negotiations during which Manchin has brought Senate Democrats closer to a more centrist position (with each successive iteration decreasing in scope and total cost), only to ultimately pull his support citing concerns over inflation. Before Schumer and Manchin’s most recent announcement, it appeared the latter would only support a reconciliation bill limited to lowering healthcare costs.
Inflation Reduction Act of 2022
The Act is estimated to raise $739 billion and spend $433 billion over the next 10 years, leaving an estimated $306 billion applied toward deficit reduction, a priority for Manchin. The bill’s tax title includes:
The bill also includes a provision allowing Medicare to negotiate certain prescription drug prices directly and would cap out-of-pocket drug costs for recipients at $2,000 per year. Finally, the Act renews through 2025 Affordable Care Act subsidies currently set to expire at the end of 2022.
Prospects for passage
While Manchin has been the principal obstacle to the Democrats’ ability to pass reconciliation legislation over the past several months, securing his vote is not the only hurdle. All eyes are now on Sen. Kyrsten Sinema (D-Ariz.), who, at the time of this release, has said she is reviewing bill text. Sinema had previously opposed certain tax increases in earlier versions of Build Back Better legislation and it is unclear whether she will vote for the Act as currently drafted. As has been discussed at length, Democrats cannot afford to lose the vote of a single senator among their ranks in order to pass a reconciliation package. Republicans appear to be unified in their opposition to any potential reconciliation package. Schumer stated he intends to bring the bill to the floor for a vote next week.
If the Inflation Reduction Act passes the Senate, it will move to the House, where it could meet potential opposition by the Democratic SALT caucus. This is a small group of representatives who have vowed to vote against any reconciliation measure that fails to address the Tax Cuts and Jobs Act’s limit on the state and local income tax deduction The bill text released by Schumer and Manchin leaves the deduction limitation under current law unchanged. At this time, it is unclear whether this faction is willing to back off their demands to support what appears to be the Democrats’ last opportunity to advance a reconciliation bill ahead of midterm elections. Again, presuming no Republican support, House Speaker Nancy Pelosi (D-Calif.) can only lose four votes in order to pass this legislation.
In early July, Senate Minority Leader Mitch McConnell (R-Ky.) threatened to hold the $280 billion bipartisan United States Innovation and Competition Act of 2021 (CHIPS Act) hostage if the Democrats pursued a reconciliation package. Shortly after this threat, Manchin pulled his support for a reconciliation bill that included anything other than Medicare prescription drug pricing provisions and a two-year extension of certain Affordable Care Act subsidies, citing concerns over June’s 9.1% inflation report.
Mere hours after the Senate voted 64-32 to advance the CHIPS Act, Manchin announced his support for the Inflation Reduction Act, an outline and complete bill text. Republicans are overall displeased with this development and are now likely to whip votes against the CHIPS Act in the House. Again, Democrats can only afford to lose four votes to pass the legislation along party lines. This means the Senate version of the CHIPS bill will need to pass the House, without modification, as any changes are sure to be defeated by McConnell if the bill heads back to the Senate.
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