Your Questions About the Big Budget Win, Answered

Photo: Kent Nishimura / Getty Images

It was an event-filled weekend as Democrats finally pushed through a budget bill in the Senate, capping off a year-long quest to fulfill campaign promises by their caucus and handing Senate Majority Leader Chuck Schumer and President Joe Biden, not to mention our entire planet, a big win as we look ahead to the midterm elections. Here are some common questions (and some misconceptions) that I saw raised on social media and in comments on my posts along with some answers.

What Happened to Build Back Better?

The bill, dubbed the Inflation Reduction Act of 2022, kept parts of the original BBB but jettisoned much of it after Sen. Joe Manchin (D-WV) and to a lesser extent Sen. Kyrsten Sinema (D-AZ) couldn’t be brought on board fully with all the sweeping programs and the $2 trillion price tag. Not included were child care credits, subsidized health care, parental leave, free community college, and an easing of immigration, to name the biggies.

The pared down bill finally tackled climate change, however, with hundreds of billions in tax credits and incentives for green energy including methane gas reduction, electric vehicles, and solar panels. It also capped prescription drug costs for Medicare recipients at $2,000 per year while authorizing Medicare to negotiate directly with the pharmaceutical companies to lower costs for certain widely prescribed drugs. It extended ACA subsidies for millions of families another few years, preventing them from losing coverage. It reduced the deficit by a whopping $300 billion, and it paid for all this by placing a minimum corporate tax of 15 percent on certain big profitable companies while beefing up IRS enforcement.

One way to view it is this: The bill took care of the most dire and pressing concern, namely the warming of our planet. It also moved to protect the pocketbooks of senior citizens, who are suffering the most from inflation as the values of their savings dwindle without any income besides social security. The programs that didn’t make it in remain the priorities of progressives and could still be implemented—if there is a solid enough majority in the Senate to do so, meaning at least two more new Democratic senators to make Manchin and Sinema irrelevant. There is a decent chance we could get there, but we’d still need to hold the House, which is a bigger lift.

Why Couldn’t They Cap Insulin Costs?

Democrats have long sought to place a price cap on the cost of insulin at $35. When this was put into the bill, the Senate Parliamentarian rejected the private price cap part of it because, under the arcane rules of the “budget reconciliation” process, that part would not have satisfied what’s known as the “Byrd Rule.” That rule is named after Senator Robert Byrd of West Virginia and has been in place since 1990. It states that reconciliation cannot include any provision where the change in spending or revenues is “merely incidental” to the provision’s non-budgetary effects. So while the Parliamentarian allowed Medicare caps on insulin costs of $35, because that would directly affect the government budget, she didn’t allow private regulation of that cost, which would only have incidental effects on revenue or spending. It was probably the correct ruling.

Democrats tried to bring the private insulin cap into the bill by introducing it as an amendment, but Republicans raised what’s called a “point of order” that required that provision to pass the normal filibuster rule of 60 votes. The vote only garnered 57 votes, including seven GOP votes, and so it failed. It is now fair to say that Republicans blocked efforts to cap insulin costs for millions of Americans, something that will likely be a political issue this fall.

What Mischief Did Sinema Get Up To?

Having been shut out of the secret negotiation process on the bill, there was widespread concern that Sen. Sinema would holdout or even tank the bill if she didn’t get her pound of flesh for her big financial backers. So it was unsurprising when Sinema said she was opposed to closing something called the “carried interest” loop hole, by which private equity and hedge fund managers get to treat their pay as capital gains (taxed at 20 percent) instead of ordinary income (taxed at nearly twice that). That line item always stuck out to me as something easy for Sinema to strike out, which is why I believe it was put in there in order to give her a target so she could claim she did something for her benefactors. (Sinema has received a lot of campaign money from private equity firms.)

What folks were not expecting was that she also would take the fight last minute to the corporate minimum tax itself. She insisted that it be narrowed to exclude pass-through income from companies invested into by private equity companies. Sinema argued that without her proposed changes, small and medium-sized businesses that happen to be part of a private equity firm portfolio would be exposed, violating a Democratic pledge to hike taxes only on the largest firms. While this might have resulted in additional taxes upon companies and individuals making less than $400,000, violating President Biden’s pledge and giving the GOP a talking point about how the bill had raised taxes on small business, that all could have been clarified in the bill by ensuring that pass-through income to the funds was subjected to the corporate minimum while sparing the small business itself from the tax. To me, the move by Sinema seemed like a sneaky way to further reward her private equity friends.

To offset the money not raised from private equity minimum taxes, the Democrats agreed last minute to limit the amount of money that pass-through companies, including private equity, can claim on their annual deductions to $250,000. That change passed 51-50. There’s no doubt that the whole process was a win for private equity, but not an unmitigated one for the taxable bottom line.

Did the GOP’s Other Amendments Accomplish Anything?

Democrats were able to hold firm and prevent the GOP from attaching any other amendments to the bill, besides the one Sinema backed.

Why Did Bernie Sanders Offer Amendments?

Sanders came forward with a handful of amendments seeking to put his championed programs like child tax credits back into the bill. While Sanders wanted to show progressives he was still battling for them, it led to some embarrassing votes where he was the lone or nearly the lone vote for the amendment. Democrats had decided before the vote-a-rama, to vote as a block to prevent any amendments that might lose the support of Manchin or Sinema. Unfortunately, this meant that Democrats who support child care, parental leave and free community college had to vote against the Sanders amendments, on the record, just to see the final bill pass intact. These votes could be used against them in the future.

What about the GOP Talking Points?

The GOP finds itself arguing that the Inflation Reduction Act actually is inflationary, and that it amounts to a “tax” on working families because the big corporations that have to pay a fairer share of taxes are going to pass those costs on in the form of lower wages. This is a form of “supply side” economics that most Americans, at least on the left and the middle, don’t buy anymore. Under this reasoning, any increase on corporate taxes is by extension a “tax” increase on workers, which is simply not true. Companies could just as easily reduce things like stock buybacks and executive compensation to help cover the difference.

The fact that Manchin and Sinema are on board with the bill likely means that independents and moderates will remain favorably disposed. In fact, polls show that the bill is widely popular among these groups.

The GOP will likely stake its ground around the IRS enforcement provisions. The bill adds $80 billion to increase the workforce and effectiveness of the IRS, and that has a lot of Republicans railing about big government. While the Democrats have pointed out that the enhanced agency will go after tax cheats only, most Americans have a visceral dislike of the IRS, and many are worried they will be targeted unfairly. My bet is that the IRS part of this will become part of political ads intended to frighten the GOP base into turning out this November.

What Happens Next? Could the House Still Block the Bill?

The House will vote this week on the bill with an up-or-down vote. Passage is widely expected. The powerful Congressional Progressive Caucus, which represents 99 House seats, came out with a statement within moments of the bill’s passage in the Senate saying that it supports the bill even if it doesn’t have all they want in it and even though the climate package makes some concessions to the fossil fuel industry in order to win approval from all senators.

Moderates in the House have grumbled that the bill does not eliminate the caps on state and local tax (SALT) deductions, which largely affects wealthier constituents in high state income tax states such as New York and New Jersey. At one point, a group of House moderates insisted that there would be no deal without the SALT cap limits lifted. But this objection is unlikely to keep them from supporting this budget bill. Indeed, any moderate who sought to block the bill now would face the wrath of climate activists and risk being primaried for it.

In short, we can expect by week’s end that there will be a bill on Joe Biden’s desk and that Democrats will be celebrating yet another massive legislative victory, building on their wins on infrastructure, CHIPS, gun violence, and the PACT Act. Whether this is enough to move public perception around the White House remains to be seen. But it is worth pointing out that Biden’s low approval numbers are largely because Democrats have been highly critical of him, especially younger voters. The climate deal, which is the most consequential in our history, may go a long way toward changing that perception.