Democrats Barrel Ahead on $740 Billion Plan

Sen. Joe Manchin
Reuters
By Yuval Rosenberg

Happy Monday and welcome to August, which is likely to start with a whirlwind of activity in Washington, D.C.

President Joe Biden is set to speak to the nation within the hour on a counterterrorism operation that killed al Qaeda leader Ayman al-Zawahiri. And Democrats are (still) racing to pass their budget reconciliation package, though they’re also waiting for clarity on where Sen. Kirsten Sinema (D-AZ) will come down on it. Here’s what you should know.

Democrats Barrel Ahead on $740 Billion Climate, Health Care and Tax Plan

Senate Democrats hope to vote on their proposed Inflation Reduction Act as soon as quickly as possible, but it’s not clear how long it might take to reach a final agreement that is backed by all 50 Democratic senators. Senate Majority Leader Chuck Schumer (NY) has reportedly told his caucus that a vote could occur as soon as this week.

First, though, the $740 billion package that Schumer and Sen. Joe Manchin (D-WV) unexpectedly sprung on Washington last week must endure a “Byrd bath,” a crucial review by the Senate parliamentarian that will determine if the legislation meets the requirements for a reconciliation bill. The reconciliation process opens the door for Democrats to pass the bill through the evenly divided Senate with just 51 votes — all 50 Democrats plus the tie-breaking vote from Vice President Kamala Harris.

Assuming the bill can pass the review with minimal changes, Democrats must also contend with another potential hurdle: the aforementioned Sen. Sinema, who along with Manchin played a central role in derailing earlier versions of the reconciliation bill.

Sinema says she is opposed to raising tax rates to offset the cost of Democrats’ spending plans, but so far has remained silent on the current bill’s plan to impose a minimum corporate tax of 15%, as well as to tighten (though not eliminate, as some have reported) the carried interest tax loophole, which allows high-income money managers to pay a lower tax rate on some of their earnings. Some analysts speculate that the carried interest provision, which raises about $14 billion over 10 years, will be a point of negotiation for the Arizona Democrat, and may be discarded in the end.

Manchin told CNN's Jake Tapper this past weekend that he thinks Sinema will support the bill. “Kyrsten Sinema's a friend of mine, and we work very close together. She has a tremendous, tremendous input in this piece of legislation,” Manchin said. “And she basically insisted that ‘no tax increases,’ we've done that. She was very, very adamant about that, and I support and I agree with her,” he added. “I think that basically when she looks at the bill and sees the whole spectrum of what we're doing ... hopefully she will be positive about it, but she'll make her decision and I respect that.”

A Sinema representative told reporters Sunday that the senator has no comment at this point and that "she’s reviewing text and will need to see what comes out of the parliamentarian process.”

Republicans attack: Apparently believing that Democrats’ legislative agenda was all but dead, GOP senators were shocked by the announcement of the reconciliation agreement last week. Their anger at the deal appears to have played a role in their sinking of the PACT Act, which would provide $280 billion over a decade for veterans sickened by exposure to toxic burn pits. About two dozen Republican senators who had voted in favor of the bill just weeks earlier changed their votes to no following the announcement of the larger reconciliation agreement last week, and their reason for doing so — claiming that Democrats had changed the nature of the funding for the bill — doesn’t hold up to scrutiny.

Sen. John Cornyn (R-TX) said last week that he had received “assurance privately from some Democrats, including the staff of the Senate majority leader, that the tax and climate provisions were off the table.” Cornyn implied that Democrats had pulled a fast one, waiting until Republicans had voted to pass the $280 billion science and technology investment bill before announcing their reconciliation plan. “How can we negotiate in good faith, compromise where necessary, and get things done together after the majority leader and the senator from West Virginia pull a stunt like this?” he thundered, referring to the reconciliation package.

Sen. John Barrasso (R-WY), chair of the Senate Republican Conference, attacked the budget reconciliation bill Sunday, telling Fox News's Maria Bartiromo that it is full of “shell games and smoke and mirrors and accounting gimmicks.” He also predicted that Democrats would have trouble passing the bill. For one thing, Sinema — who Barrasso said “felt blindsided” by the announcement of the surprise agreement — has a “spine of steel” and would not “easily be twisted.” For another, he noted that Democrats have been missing some lawmakers lately: “In terms of, will this pass, they need all 50 Democrats on board and in the room. … They haven’t had 50 senators show up for work in well over a month. So, this is far from done.”

More substantially, citing an analysis released by the nonpartisan congressional Joint Committee on Taxation late last week, GOP lawmakers said the bill would raise taxes on virtually all Americans. “The mislabeled ‘Inflation Reduction Act’ will do nothing to bring the economy out of stagflation and recession, but it will raise billions of dollars in taxes on Americans making less than $400,000,” said Sen. Mike Crapo (ID), the senior Republican on the Finance Committee.

The JCT study found that the imposition of a minimum corporate tax would raise $313 billion in revenue over 10 years, but that some of the tax increase would be passed onto consumers, JCT assumes. As a result, households would pay more in taxes, indirectly, over time. According to the JCT, households earning less than $200,000 would pay about $16 billion more in taxes next year.

Democrats pushed back against the idea that the legislation would raise taxes on anyone but a relative few high-income households and corporations. The bill is “not putting a burden on any taxpayers whatsoever,” Manchin said Sunday. Some nonpartisan experts agree. It’s a “bogus argument,” said Steve Rosenthal of the Tax Policy Center, adding that it’s “more of a gotcha kind of thing.”

New York magazine’s Jonathan Chait also criticized the Republican line of attack. “The JCT report simply does not find this at all,” Chait said of the tax hike. “The false assertion that Manchin’s deal raises taxes on the middle class combines a series of fallacies.”

Debating the inflation effects: A major selling point of the bill is its purported effect on inflation. “This bill will reduce inflationary pressures on the economy,” said President Biden last week. But an analysis by the Penn Wharton Budget Model found that the bill “would very slightly increase inflation until 2024 and decrease inflation thereafter,” and this conclusion is being widely cited by opponents.

As with most estimates, however, there are alternative views. Former Treasury Secretary Larry Summers, a noted inflation hawk, has expressed support for the bill, saying it would reduce inflationary pressure. And a new Moody’s analysis finds that the bill will “nudge the economy and inflation in the right direction,” reducing inflation by three basis points per year over 10 years.

“The Inflation Reduction Act is much smaller in scale and scope than the original Build Back Better agenda from which it comes,” the Moody’s analysis concluded. “Regardless, it will have a material beneficial economic impact.”

US Sending Ukraine Another $550 Million in Military Aid

The United States is sending another $550 million in military aid to Ukraine. The Pentagon said this new package is the Biden administration’s 17th drawdown of equipment from Defense Department inventories for Ukraine since August 2021. The aid will include ammunition for the High Mobility Artillery Rocket System, or HIMARS, as well as 75,000 rounds of 155 mm artillery ammunition.

The United States has committed about $8.8 billion in security assistance to Ukraine since President Biden took office, according to the Pentagon.

US Government Could Lose $197 Billion on Student Loans: Watchdog

The Department of Education had originally estimated that federal student loans made over the last 25 years would generate $114 billion in income for the government, but a new watchdog agency report says that an updated estimate forecasts a much different result: a loss of nearly $200 million.

“Although actual costs cannot be known until the end of the loan terms, as of fiscal year 2021 these loans are estimated to cost the federal government $197 billion,” the Government Accountability Office said in a report released Friday. “This swing of $311 billion was driven both by programmatic changes and by reestimates using revised assumptions (e.g., economic factors and loan performance) as additional data became available.”

The largest cost increase in the revised estimate is the result of the pandemic-related suspension of student loan payments provided under the 2020 CARES Act, which also halted the accrual of interest and “involuntary collections” for loans in default.

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