This year’s budget reconciliation bill — the recently announced Inflation Reduction Act of 2022 (IRA) — debunks some popular nostrums on the Left, namely the idea that it doesn’t matter if Sen. Joe Manchin of West Virginia is on the side of Democrats or Republicans in the U.S. Senate. This delusion is reflected in wishes to see Manchin disciplined for his egregious behavior, which has indeed been egregious, by being thrown out of the Democratic caucus, or by being deprived of his committee leadership positions. In either case, his vote would likely belong to Sen. Mitch McConnell, Republican leader in the Senate, and by that stroke, the new majority leader.
Manchin was thought by many to be a permanent lost cause after killing President Biden’s Build Back Better bill late last year, but he evidently felt pressure to come back to the table with Senate Majority Leader Chuck Schumer (D-N.Y.). If it passes, the IRA could be a boon for Democrats in November. The agreement, while not final, is definitely a surprise, not least because the negotiations were conducted entirely in secret, were leak-free, and were well-timed.
Last month, McConnell threatened to block a popular bipartisan bill known as the CHIPS Act that leverages domestic U.S. electronics manufacturing, purportedly in retaliation for a “partisan” budget bill, which, as noted above, appeared to be dead. Schumer waited until CHIPS was passed, then he announced the new IRA budget deal. In a rare turnabout, it was McConnell who got pantsed by Cryin’ Chuck and Sleepy Joe.
In the wake of this debacle, Texas Republican Sen. John Cornyn whined, “This betrayal is an absolute declaration of political warfare.” After their hypocritical funny business with the confirmation of Justice Amy Coney Barrett to the Supreme Court, this response from the GOP is kind of special. In their rage, Republicans also spiked a bipartisan bill to support veterans’ healthcare, and Sen. Susan Collins threatened a defeat for any future marriage equality votes. Good luck explaining that to the voters.
Is the IRA the greatest thing since sliced bread? Not hardly. But it is a hell of a lot better than nothing, which is what we would get if the Republicans ran the Senate. We could also cite the approval of Democratic nominations to the federal courts, especially the recent elevation of Ketanji Brown Jackson to the Supreme Court. In all, 74 of Biden’s nominations to federal judgeships have been installed under Democratic control of the Senate.
Individual senators have considerable power, so they are incentivized to go rogue. When you hold the marginal votes in the Senate, as Manchin and his colleague Sen. Kyrsten Sinema (D-Ariz) do, the incentives are limitless. As far as their voters go, there is little to be done. Manchin’s electoral margins in West Virginia are bulletproof, and Sinema is not up for reelection until 2024. Can’t live without ‘em, can’t shoot ‘em — that is the sad reality. Just two more cooperative Democrats in the Senate would render them irrelevant.
Joe Biden got a lot of grief for suggesting he could bargain with his old friends on Capitol Hill. But the success of this budget bill, if it ultimately passes, could provide a bit of backing for that claim.
Build Back Manchin
As usual, the big omnibus budget bill is a mixed bag. Broadly speaking, it is a deficit reduction bill, the the text of which can be found here. The Biden administration’s ideological framing, premised on the dubious threats of inflation and budget deficits, is a complete fiscal policy surrender to centrist deficit scolds, who command no political following. All that does is get you points with the Washington Post editorial board, when they’re not busy sabotaging your every other move. The surrender is more ideological than real, since the annual deficit impact of the bill is only around $30 billion, which, in an economy the size of the United States, is completely inconsequential. At any rate, Democrats can say that, against all odds, they did get something done.
Demands for bigger deficits are not well-timed at the moment, given the ongoing inflation scare. The IRA’s revenue increases will likely help ease political resistance to social spending in the future, and there is some new spending in the package.
As I’ve suggested more than once, the inflation spikes should reverse sooner rather than later, since they are caused mainly by temporary disruptions in the manufacture and sale of goods and services. On top of this we have undeniable pressure exerted by the Federal Reserve hike in interest rates, which should dampen inflation moderately, though it will also likely lead to an unjustifiable expense in lost jobs and income. The most recent data on gross domestic product (GDP) shows a second consecutive quarter of contraction, usually an indicator of recession. Still, the GDP dip has yet to be mirrored by the jobs data, which is going great guns. Economists find this strange. (It’s not an exact science, folks.)
Bonds’ market values are directly affected by inflation expectations. Of course, markets can be grossly wrong, but going by this metric, established by people who are paid handsomely, the inflation jump is now over.
Given the whipsaw between pressure for deficit reduction and social spending needs, the best progressive posture regarding the deficit right now is benign neglect. The better focus is the need for social spending increases. And we do get some of that in the IRA.
The bill’s sponsors advertise a historic $369 billion investment in climate change measures, and $64 billion to extend Obamacare subsidies — a win on the healthcare front. The climate change provisions are a double-edged sword, thanks to the need for buy-in from Manchin. There are tax subsidies for clean energy, but also for fossil fuels under the rubric of “do everything.”
Some of the revenue raisers are themselves praiseworthy. They include an increase in the corporate income tax, cuts in prescription drug prices (what Medicare pays to the drug companies), and more money for the Internal Revenue Service, which is an important investment as about one dollar in six of federal taxes currently goes unpaid or is paid late.
A new feature of U.S. corporate tax policy is the move towards an international corporate minimum tax, of particular relevance to the use of tax havens by “zero-tax” corporations. This bill is only a gesture towards that objective, not least because there will be ways of gaming the tax, but it opens up a new front in the battle for income equality.
In a similar vein, there is a modest contraction of one of the most egregious loopholes in the federal income tax — the tax relief provided to so-called “carried interest.” (Carried interest is the profit reaped by hedge funds on the gains to their customers’ financial portfolios. The rich are able to keep more of these gains thanks to reduced tax rates.) Word is we have Sen. Sinema to thank for failure to abolish this tax break altogether.
The achievement of this budget bill, barring some 11th-hour sabotage from Sinema or other Democratic obstructionists, should help the party’s electoral fortunes. What’s more, it will serve to curb extreme climate impacts and bring some much-needed fairness to the U.S. tax system. The IRA is no progressive panacea, but by avoiding the Manchin veto, it may be the best bill Democrats can pass at this point — which is far superior to whatever the GOP would do in power.
Add this bill to public outrage over the Supreme Court’s decision to blow up reproductive rights, the Republican nominations of weirdos for the Senate in states such as Pennsylvania, Ohio and Georgia, plus threats to marriage equality, and one thing becomes clear: Democrats will have something to work with in this year’s midterm elections for Congress.
Max B. Sawicky is a senior research fellow at the Center for Economic and Policy Research. He has worked at the Economic Policy Institute and the Government Accountability Office, and has written for numerous progressive outlets.