Well, it was fun while it lasted. But is it over yet?
Yeah, probably — in the Senate, anyway. The House may be the next popcorn-passing opportunity, assuming Bernie Sanders hops on board the Inflation Reduction Act deal made with Kyrsten Sinema late last night. That’s still a big if, but first we have to see how Sinema finally climbed aboard the reconciliation train.
In the end, the offer was pretty easy and relatively cheap, which again prompts the question of why they didn’t negotiate this with Sinema as well as Joe Manchin. Chuck Schumer agreed to swap tax hikes to satisfy Sinema in a way that may be a bit more targeted at one corporate behavior that Sanders hates even more than carried interest:
In a statement, Sinema said Democrats had “agreed to remove” a key tax policy targeting wealthy investors that aimed to address what is known as the “carried interest loophole.” She also signaled they had made additional tweaks to a second provision that imposes a new minimum tax on corporations that currently pay nothing to the U.S. government.
The latter set of revisions is likely to benefit some manufacturers, according to two people familiar with the matter, who spoke on the condition of anonymity to describe the unreleased details. Many corporate executives, including Arizona business leaders, had petitioned Sinema to consider the consequences of the tax in recent days.
With it, Democrats opted to seek a new 1 percent tax on corporate stock buybacks, a move that would make up at least some of the revenue that might have been lost as a result of the changes, the two people familiar with the matter said. And party lawmakers agreed to set aside new money at Sinema’s request to respond to climate issues including drought, according to the sources.
In one sense, Sinema’s support came cheap. The drought spending amounts to $5 billion over the next ten years, although likely front-loaded as the water situation is acute in Arizona. That’s a nice pork chop for Sinema and Mark Kelly to tout, especially while Kelly runs for re-election in a tough midterm cycle against Blake Masters. Five billion is chump change for Schumer, especially since it’s supplied by chumps … meaning US taxpayers.
The tax changes make more sense for progressives, at least in one sense. The idea of taxing carried interest — an investment product — at income rates never made sense, but especially in an inflationary wave pushed in part by supply shortages. Sanders and his progressive allies didn’t care about that as much as they desired the punitive action against capital investors they despise, but a tax on corporate stock buybacks makes more sense for their specific complaints. Companies that use inflation-pumped profits to buy back stock have come under heavy criticism from progressives, even though at least one industry — oil and gas producers — no longer have much choice. Joe Biden’s energy policy makes any long-term investment in production and refining useless, so it’s either stock buybacks or more dividends to shareholders.
One has to wonder whether the other tax change will pass progressive muster, though:
Changes to secure Sinema’s backing also appear to include softening the proposed 15 percent corporate minimum tax. Republicans and business groups had raised alarms that the tax would otherwise disproportionately impact manufacturers who rely heavily on accelerated depreciation, or faster writeoffs of equipment purchases.
National Association of Manufacturers President and CEO Jay Timmons said in a statement that he was glad to hear Democrats’ agreement would exempt accelerated depreciation from the minimum tax.
“We remain skeptical and will be reviewing the revised legislation carefully,” he said. “We cannot afford to undermine manufacturing competitiveness.”
So there will be a 15% minimum corporate income tax … from which corporations will still be allowed to apply exemptions and deductions? That doesn’t make much sense, and it may not fly. Progressives fought hard to get to a position where they could impose that on supposed corporate cheaters, and this weakening won’t make them any more fond of a reconciliation effort that’s already only one-tenth of their original ask.
Sanders already didn’t sound happy about the IRA, calling it a “climate suicide pact” and “the so-called ‘Inflation Reduction Act'” in a Wednesday night speech. Yesterday Sanders continued his griping to the Washington Post, lamenting all of the opportunities passed up by Schumer in his attempts to woo Sinema and Joe Manchin:
“Does this bill address the health-care crisis in America? No,” Sanders told The Washington Post on Thursday. “Does it deal with the cost of higher education or community college? No. Does it deal with housing? No … Does it deal with the issue of wealth and income inequality? No, it really doesn’t.”
“Reconciliation is the opportunity, the only opportunity we have, to really address the needs of working families,” he continued, saying of the bill: “No one can argue that it does [that].”
Like others in his caucus, Sanders said Thursday that he had not been included in the highly secretive talks between Schumer and Manchin that led to their breakthrough agreement. But he said it would have been a “fruitless effort” for him to negotiate with Manchin, since earlier attempts to reach a resolution with his moderate counterpart “did no good.”
So will Sanders deliver a coup de grace on the Senate floor to Schumer’s IRA rather than Sinema? Will he offer a John McCain-esque thumbs down to the bill? Probably not, but the changes that brought Sinema on board are going to make Sanders even angrier and more publicly unhappy with the bill. He’ll use the vote-a-rama that starts on Saturday to vent endlessly about it too, but in the end he’ll almost certainly conclude that while $500 billion is a lot worse than $5 trillion, it’s still a little better than zero.
But not much better, which brings us to the House progressives. Last year, CPC chair Pramila Jayapal insisted that she and her team were sick of getting half a loaf in legislative settlements and that they would not compromise on reconciliation. That was when the reconciliation bill had been cut from $5 trillion to somewhere around $3.5 trillion and then again when the price dropped to less than $2 trillion to satisfy Manchin. Jayapal and her team demanded at that time that the full roster of progressive agenda items get addressed in a final bill, or else.
This is a pale version of even the last iteration of Build Back Better to which Jayapal objected so strenuously. On top of that, Nancy Pelosi’s House Democrats have already been balking at being forced to rubber-stamp the Senate’s deals, and not just on BBB/IRA. Even Pelosi herself was none too pleased with Schumer’s negotiations just three weeks ago.
So will Jayapal and her progressive caucus demand to make changes that will end up torpedoing the Senate version? It’s certainly possible, even though that would all but derail any hope of getting a reconciliation package passed by its September 30 expiration date. Sanders’ continued castigation of the bill makes them vulnerable in this midterm cycle to charges of selling out, although that may have been more of an acute risk in primaries rather than general elections.
If I had to guess, I’d predict that they hold their noses and get the money they can before the window closes. In fact, I’d call that overwhelmingly likely. But Pelosi can only afford to lose four members of her caucus, and Democrats have spent the entire session perfecting the art of cutting of their collective nose to spite their face. That habit may be too hard to break at this point.