At the end of a long saga that often left Democrats in a state of chronic despair, it looks like a much smaller yet still significant FY 2022 budget-reconciliation bill — which began life as the Build Back Better package and has now been shrink-wrapped and rebranded as the Inflation Reduction Act — may finally be enacted. A week ago, a surprise deal was announced between Senate Democratic Leader Chuck Schumer and long-time holdout Joe Manchin that included energy and tax provisions alongside popular health-care and prescription-drug measures. Now the Senate’s other long-time holdout, Kyrsten Sinema, has signed onto the bill too.
As my colleague Jonathan Chait noted last week, the Schumer-Manchin deal included a provision that Sinema has always loathed: an end to the carried-interest tax loophole:
This measure, while not especially large — it would only raise $14 billion over a decade — would eliminate a scheme used by a small number of Wall Street titans who have maneuvered to turn their work as investment advisers into capital gains, which is taxed at a lower rate than labor income.
The provision is so gross that hardly anybody actually defends it openly.
Sinema (and, for that matter, Schumer) seems to have calculated that liberal revulsion over the price she demanded for her support would be more than offset by joy that she didn’t kill the whole thing. So Senate Democrats went along with her demand (they also added some additional drought money, while offsetting the cost of concessions to Sinema via an excise tax on stock buybacks). That means on paper, at least, the Inflation Reduction Act has the 50 votes it will need (along with Kamala Harris’s tie-breaker) to finally emerge from the upper chamber.
There are, however, three challenges remaining before Biden can sign this legislation, whose prospects have had such a major effect on Democratic morale in this midterm-election year.
First, the Senate parliamentarian has to sign off on the bill as compliant with the Byrd Rule governing germaneness in budget legislation (which is basically designed to keep lawmakers from evading the Senate filibuster by throwing in policy changes that have little or nothing to do with spending or revenues). There are some concerns that the prescription-drug pricing provisions, without a doubt the most popular parts of the legislation, could be struck down by the parliamentarian. But Democrats are optimistic about tweaking the provisions to keep them Byrd-compliant if problems arise.
Second, the bill, like all budget legislation, will have to undergo a “vote-a-rama,” a brief period of unlimited opportunities for amendments. Senate Republicans will exploit this opportunity to force votes on all sorts of politically sensitive matters, particularly the so-called “border crisis.” And from the other side of the aisle, Bernie Sanders will offer amendments to add back in many of the original BBB items that were removed to keep talks with Manchin and Sinema going (though Sanders has made it clear he will vote for the final product even if all his amendments fail).
And third, the bill must pass the House, where a group of moderate Democrats from high-tax states have been demanding a restoration of the ability to fully deduct state and local taxes (SALT) on federal tax returns. There has been a perceived softening of the “No SALT, No Deal” sentiment in the House, but Nancy Pelosi will have to work her usual magic to get a majority.
None of these obstacles should be dismissed, but let’s just say the odds of Democratic success on a meaningful reconciliation bill are vastly higher than they were two weeks ago. That Manchin and Sinema have now finally put on the party harness is a very good sign for the beleaguered Democratic Party.
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