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Taxes Hikes — and Inflation — Could Sink Dems’ Economic Plan

·4 min read
Stefani Reynolds/Pool via Reuters

Senate Majority Leader Chuck Schumer (D-NY) is still trying to hash out an agreement on a budget reconciliation bill with Sen. Joe Manchin, the pivotal West Virginia Democrat who holds the keys to his party’s legislative agenda in his reluctant hands. As we reported earlier this week, Democrats have made substantial progress on two key issues: a plan to empower the federal government to negotiate lower drug prices in Medicare and a plan to raise taxes on the wealthy, with the revenues dedicated to solidifying Medicare’s finances and reducing the budget deficit.

But the road ahead isn’t getting any easier, raising new concerns about lawmakers’ ability to finish the deal.

For one thing, Schumer has caught the Covid-19 virus, forcing him to negotiate with Manchin from his home in Brooklyn. Schumer held virtual meetings with Democratic leaders and his caucus this week, saying his goal is to vote on a bill approved by Manchin before the Senate leaves town in August for its summer recess, using the filibuster-proof reconciliation process that expires at the end of September. But at least one Democratic senator said Schumer’s absence from Washington was a problem. “It’d be better if he was here this week. But … life is life,” said Sen. Jon Tester (D-MT), according to Politico.

Manchin, for his part, sounded less than fully enthusiastic about the prospects for the deal. “We can agree to disagree, we can agree to try and find a moderate middle. He knows that I’m not in the base camp far to the left; that will never happen,” Manchin told Politico, referring to Schumer. “He knows exactly where I’m at. Now whether they can get there or whatever, we’ll see.”

On Wednesday, following the release of another shocking inflation report, Manchin sounded even more uncertain, telling reporters that the Schumer bill “needs to be scrubbed much better” for any provisions that may contribute to inflation. “Basically, take your time and make sure we do it and do it right. We can’t afford mistakes in the highest inflation we’ve seen in the last 40 years,” he told reporters.

In light of the June inflation report, Manchin hinted that he may be able to support only the drug-pricing parts of the plan. “We know what we can pass is basically the drug pricing, OK, on Medicare,” he told reporters. “Is there any more we can do? I don’t know, but I am very, very cautious.”

White House eyes oil projects: As part of its effort to win the West Virginian’s support for a spending bill that would include new funding for energy and climate issues, the Biden administration is reportedly considering approving plans to increase oil drilling in Alaska and the Gulf of Mexico and to build a new gas pipeline in West Virginia – plans favored by Manchin, who serves as chair of the Senate Energy and Natural Resources Committee and has deep connections to the fossil fuel industry.

While some of the projects would violate Biden’s earlier pledges to restrict certain kinds of energy projects, White House officials say that may be the price of making a deal with Manchin. But the plan is still in flux, with much depending on how Manchin responds. “[A]s they weigh this trade-off, Biden officials are wary of approving these projects only to then lose Manchin’s vote on the climate and energy deal anyway,” The Washington Post’s Jeff Stein and Anna Phillips write.

Tax hikes could be a problem: While Manchin has previously expressed support for the idea of raising taxes on high-income households, some Democrats in the House could attempt to shoot down any such effort. Axios’s Hans Nichols reports that Rep. Josh Gottheimer of New Jersey – one of the Democratic centrists who helped pass a $1 trillion infrastructure bill last year, in an effort that ultimately undermined President Biden’s ambitious Build Back Better plan – is discussing the issue with a group of lawmakers, including Reps. Tom Suozzi (NY), Susie Lee (NV) Dean Phillips (MN) and Mikie Sherrill (NJ). The group is weighing a counteroffer to Schumer’s still-developing plan that rejects tax increases on the kind of people that live in their relatively well-off districts.

The centrist plan would reportedly propose $520 billion in new spending on energy and health programs, funded by $627 billion in revenues produced by IRS reforms and drug price savings. Whatever the merits of the slimmed-down budget plan, it would likely sharply reduce the odds of reaching an agreement that satisfies all interested parties.

“Any attempt to modify a deal that Senate Majority Leader Chuck Schumer may reach with Sen. Joe Manchin (D-W.Va.) could scuttle the entire package,” Nichols writes. “That could deprive President Biden — and vulnerable lawmakers — of a pre-election win at a time of real weakness.”

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