Aug 1, 2022

The Manchin deal.

The Manchin deal.

What is in the deal, and what it means for Biden.

I’m Isaac Saul, and this is Tangle: an independent, ad-free, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum on the news of the day — then “my take.”

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Today's read: 12 minutes.

A breakdown of the Manchin-Schumer deal, a personal update, and a story about political divisions.

Sen. Joe Manchin (D-WV). Image: Third Way Think Tank

The good news.

First off, I'd be remiss not to thank the Tangle community for their kind words, support and congratulations over the past week. As I mentioned last week, I took a couple days off to compete in the World Ultimate Club Championships. It was my last tournament ever with Pride of New York (PoNY), a team I captained for five years and have poured my soul into.

The week was (almost) a perfect ending. On the first day, I pulled my hamstring and worried I wouldn't make it back. But I managed to play in three more games. Tuesday night, in one of the greatest honors of my life, the team retired my jersey. On Saturday afternoon, after beating teams from Germany, the United Kingdom (twice), Singapore, Belgium, Portland, Oregon, and Japan (twice) we met the next-best U.S. team in finals: My older brother's squad from Raleigh, North Carolina. And we won, 15-12.

It was the perfect finish to a dream career (even if it was stressful for my parents). I'm grateful beyond words to have had a chance to represent my country on the world stage, and thankful for everyone who cheered us on and sent messages of support.

And now I can officially say it: World Champs!


The bad news.

I tested positive for Covid-19 this morning. I started feeling some symptoms yesterday and woke up with what felt like a cold. Unfortunately, this is my second go-round with the virus. Like President Biden, I ordered the antiviral medication Paxlovid and should be starting my treatment today — so I'm hopeful it's a quick turnaround. Because I work in a shared office space, this also means there will be no podcast today, as I need to coordinate getting my recording equipment.


Quick hits.

  1. The first ship carrying grain exports from Ukraine since Russia's invasion began has left the port city of Odessa. (The shipment)
  2. House Speaker Nancy Pelosi is in Asia with planned trips to Japan, Malaysia, Singapore and South Korea, but it's unclear whether she will follow through on her controversial plan to visit Taiwan. (The trip)
  3. President Biden tested positive for Covid-19 again on Saturday after a "rebound" of the virus, an occurrence that has been well-documented in people taking the Paxlovid treatment. (The rebound)
  4. At least 28 people have died in flooding in Kentucky, as rescue efforts continue and more rainfall is expected this week. (The flooding)
  5. Former Trump adviser Steve Bannon is seeking a delay in serving any of his prison sentence while he appeals his conviction for contempt of Congress charges. (The delay)

Our 'Quick Hits' section is created in partnership with Ground News, a website and app that rates the bias of news coverage and news outlets.


Today's topic.

The Manchin-Schumer deal. On Wednesday, Sen. Joe Manchin (D-WV) said he had struck a deal with Senate Majority Leader Chuck Schumer on a reconciliation bill that would aim to reduce the deficit, address climate change, and reform prescription drug pricing. The surprising announcement came not long after Manchin indicated he would not help his party push a bill through until the latest inflation numbers came out in mid-August.

It also came just hours after Democrats (with some Republican support) pushed through a $282 billion bill to support U.S. domestic semiconductor manufacturing. Mitch McConnell, the Republican Senate minority leader from Kentucky, had threatened to sink that bill if Democrats attempted to push through a reconciliation package. But the bill moved forward after Manchin indicated he would not support such a package before changing course immediately after the bill passed.

Manchin is calling the legislation the Inflation Reduction Act of 2022. A one-page summary of the agreement was sent out by Manchin's office. It aims to raise $739 billion of revenue over 10 years by:

  • Raising the corporate minimum tax to 15% ($313 billion)
  • Reforming prescription drug pricing ($288 billion)
  • Increasing IRS tax enforcement ($124 billion)
  • Closing the "carried interest" loophole and taxing it as income ($14 billion)

And the bill calls for $433 billion of speding:

  • $369 billion investment in climate change and energy
  • $64 billion to extend the Affordable Care Act for three more years

Manchin's office said the bill will reduce the deficit by over $300 billion, reduce inflation, lower energy costs, increase clean energy production, reduce carbon emissions by 40% by 2030, create electric vehicle tax credits, allow Medicare to negotiate drug prices, cap out-of-pocket drug costs for Medicare recipients at $2,000, and lower the ACA premiums.

"Rather than risking more inflation with trillions in new spending, this bill will cut the inflation taxes Americans are paying, lower the cost of health insurance and prescription drugs, and ensure our country invests in the energy security and climate change solutions we need to remain a global superpower through innovation rather than elimination," Manchin said in a statement.

McConnell responded with criticism.

"Democrats have already crushed American families with historic inflation. Now they want to pile on giant tax hikes that will hammer workers and kill many thousands of American jobs," he said in a tweet.

If Democrats manage to pass the reconciliation package into law, it'd mark a surprising series of legislative victories for Joe Biden just months after many considered his entire agenda in peril under the weight of poor approval ratings and rising inflation. While the reconciliation package is much smaller than the one President Biden proposed, he will have signed bills on gun reform, semiconductor chips, and a climate change and health care package, all in the final weeks of this legislative session.

Below, we'll take a look at some arguments from the left and right, then my take.


What the right is saying.

  • The right mostly opposes the bill, arguing that it won't reduce The right mostly opposes the bill, arguing that it won't reduce inflation (at least in the near-term).
  • Some say it amounts to a tax increase on most Americans.
  • Others say the bill contains lessons for Republicans, even if it shouldn't pass.

The Wall Street Journal editorial board criticized the bill, arguing that it doesn't do what Manchin says it does.

"Majority Leader Chuck Schumer wants a Senate vote on his partisan tax deal with Joe Manchin as early as this week, and no wonder he wants to rush it through," the board wrote. "The more Americans learn what’s in this tax-and-spend behemoth, the more they’ll dislike it. Start with the authors’ central claim that the bill will reduce the deficit and thus inflation. The Penn Wharton Budget Model, which Sen. Manchin has been known to watch, examined the details of Schumer-Manchin and found that it doesn’t contain any net deficit reduction until 2027... We don’t agree with those who think deficit reduction leads in a straight line to lower inflation, but that’s what the Democrats claim for their bill. If the first deficit reduction doesn’t come for five years, what’s the help on inflation today?

"An analysis by the National Association of Manufacturers says the [corporate book income tax increase] in 2023 alone will reduce real GDP by $68.5 billion and cut labor income by $17.1 billion. One well-known economic truth is that corporations don’t really pay taxes. They are essentially tax collectors, as the corporate tax rate ultimately falls on some combination of workers, shareholders and customers. Raise the corporate tax rate, and you’re cutting wages and salaries for workers," the board added. "The JCT finds that average tax rates will increase for nearly every income category in 2023 under the bill. Taxes will rise by $16.7 billion in 2023 on Americans earning less than $200,000 a year. Taxpayers earning between $200,000 and $500,000 will pay $14.1 billion more. This gives the lie to Democratic claims that no one earning under $400,000 will pay more taxes under the bill, a promise Mr. Biden also made in his campaign. The reality is that the Schumer-Manchin bill is a tax increase on nearly every American."

In The Washington Examiner, Conn Carroll said the Inflation Reduction Act doesn't reduce inflation.

"The Inflation Reduction Act does a lot of things. It raises taxes on almost everyone, including those who make less than $10,000 a year," Carroll wrote. "It gives billions to the wealthy to help them buy electric cars. It raises taxes on those producing energy on public lands. And it gives tens of billions to health insurance companies. What it doesn’t do, however, is reduce inflation. In fact, according to the University of Pennsylvania, it raises inflation through 2024. 'The Act would very slightly increase inflation until 2024 and decrease inflation thereafter,' the Penn Wharton Budget Model staff write. “These point estimates are statistically indistinguishable from zero, thereby indicating low confidence that the legislation will have any impact on inflation.”

"So why did Sen. Joe Manchin (D-WV) call his 725-page legislation 'The Inflation Reduction Act' if it doesn’t reduce inflation? It appears he is trying to cover up the fact that he caved to pressure from far-left activists to pass President Joe Biden’s Build Back Better agenda," Carroll wrote. "Don’t expect that 'new era of compromise' to start anytime soon. Democrats still plan to pass the Inflation Reduction Act through the Senate’s reconciliation process with only Democratic votes. No Republicans have signed on to the bill’s massive tax hikes and none are expected to. Democrats still aren’t even sure they will have all 50 of their own members on the bill, as Sen. Kyrsten Sinema (D-AZ) still has not said whether she supports it."

In The Washington Post, Henry Olsen said Republicans are right to oppose the compromise, but that doesn't mean they can’t learn from it.

"Republicans can still learn some essential insights from Manchin’s approach for when they regain power. Manchin grasps two things many Republicans resist: We can’t solve our deficit problem without revenue increases, and those hikes should fall on the entities best able to bear the burden," he said. "His proposals might be dodgy and tying it to spending hikes is dubious, but any politically successful deficit-reduction measure will rest on these two core premises. Republicans who resist this need to get serious. Coincidentally, the Congressional Budget Office on Wednesday released its long-term budget outlook for 2022, and it is sobering.

"As with prior outlooks, the CBO projects increasing debt and deficits as far as the eye can see," he wrote. "Debt held by the public is projected to rise to as much as 185 percent of gross domestic product by 2052. The interest the government pays to service the massive debt is also projected to grow. Somehow, I don’t think Americans will like having to scrimp on social programs to repay the wealthy investors, banks and foreign sovereign wealth funds that will reap the benefits of our profligacy... That’s where Manchin’s insights come in. If we need to spend more, and if we need to cut the deficit, we need to raise taxes and find other sources of revenue in a way that is politically palatable. Manchin’s answers are the right ones: It should come from the well-to-do, whether they are behemoth corporations or the upper-class Americans who have benefited most from the era of globalization."


What the left is saying.

  • The left is supportive of the bill, arguing that it's a major win for Congress and the country.
  • Some agree the bill will reduce inflation and be a major step toward reducing carbon emissions.
  • Others argue it’s a major vindication for the climate change left.

The Bloomberg editorial board said it'd be a big win for Congress and the country.

"The new deal, intended to be passed along party lines in accordance with the Senate’s budget-reconciliation rules, would accomplish nearly all of the most important goals of Biden’s initial proposal without its most controversial baggage. It would offer some $433 billion in new spending, bring in $739 billion in revenue and reduce deficits by $300 billion over a decade. Promisingly, the proposed spending is well focused. A summary of the deal Democrats put out on Wednesday says it would offer fully $369 billion for climate and energy proposals, the most urgent parts of Biden’s original $3.5 trillion proposal.

“That should turbocharge the administration’s plans to reduce carbon emissions and lay the groundwork for a clean-energy economy, while avoiding some of its less defensible outlays. The new bargain would also put $64 billion toward extending Covid-era subsidies for Obamacare health insurance, thus helping millions of Americans avoid significant premium increases," the editors said. "To raise revenue, it would establish a 15% corporate minimum tax for large companies, allot $124 billion to the IRS for enhanced tax enforcement, and close the so-called carried-interest loophole, which allows investment-fund managers to pay income taxes at a preferential rate. Realistically, such reforms will be subject to plenty of gamesmanship and gimmickry going forward. But this is a sober attempt at fiscal responsibility.

In The Wall Street Journal, former Obama economic advisor Jason Furman said the bill will ease inflation and climate change.

“Some critics claim the bill actually raises inflation. They may be thinking of President Biden’s defunct Build Back Better proposal, which was much larger and would have increased the deficit over the next five years. The Inflation Reduction Act is fundamentally different. It’s smaller and contains no large upfront deficit increases. In fact, it would reduce the deficit by more than $300 billion over the next decade. It could end up saving more than that, since properly funding the Internal Revenue Service will likely generate substantially more revenue than congressional estimators believe. The bill also creates a new precedent for paying for routine extensions of tax breaks. This is something both parties have routinely ignored in the past.

“Deficit reduction is almost always inflation-reducing. This is true whether you view it through the lens of the effect on aggregate demand or the fiscal theory of the price level championed by John Cochrane. That theory holds that lower deficits mean policy makers will be less tempted to inflate away future debts. Some have argued that the tax hikes in the bill would spur inflation, not reduce it. Raising corporate taxes, according to this view, reduces business investment, which results in a smaller capital stock and lower productivity. Even if the premise about discouraging business investment is correct, which isn’t at all clear, the same logic implies that the Fed’s interest-rate hikes—which definitely discourage business investment—also raise inflation. This mirrors modern monetary theory’s argument that spending more on public investment will reduce inflation by raising productivity. All these claims are wrong."

In The New York Times, David Wallace-Wells said the climate left "may be vindicated."

"The deal, if it holds, is very big, several times as large as anything on climate the United States passed into law before," Wallace-Wells wrote. "The architects and supporters of the $369 billion in climate and clean-energy provisions in Joe Manchin’s Inflation Reduction Act of 2022, announced Wednesday, are already calculating that it could reduce American carbon emissions by 40 percent, compared with 2005 levels, by 2030. That’s close enough to President Biden’s pledge of 50 percent that exhausted advocates seem prepared to count it as a victory, if a somewhat mixed one that still falls short of the demands of scientists and the Paris Agreement. But hundreds of billions in spending and hundreds of billions more in loans do add up.

"This bill is a compromise, obviously and outwardly. It is also a historic achievement for the climate left and a tribute to both its moral fervor and its political realism. Climate is a top-shelf political concern because it has been pushed there by those who care most; it is now on the verge of being addressed, at scale, because that push appears to have worked," Wallace-Wells continued. "In less than five years, a new generation of activists and aligned technocrats has taken climate action from the don’t-go-there zone of American politics and helped place it at the very center of the Democratic agenda, persuading an old-guard centrist septuagenarian, Biden, to make a New Deal-scale green investment the focus of his presidential campaign platform and his top policy priority once in office. This, despite a generation of conventional wisdom that the issue was electorally fraught and legislatively doomed. Now they find themselves pushing a recognizable iteration of that agenda — retooled and whittled down, yes, but still unthinkably large by the standards of previous administrations — plausibly forward into law."


My take.

Reminder: "My take" is a section where I give myself space to share my own personal opinion. It is meant to be one perspective amid many others. If you have feedback, criticism, or compliments, you can reply to this email and write in or (if you're a subscriber) leave a comment.

I'm going to try to explain the politics of this moment, the things I like about the bill, and what I'm unsure of.

First, the politics: This would be a big win for Biden and the Democrats who put him in office. If this bill becomes law, it'll be one of the more dramatic reversals of fortune I can remember in recent political history. Just a few weeks ago Biden was facing terrible inflation numbers, record-high gas prices, a low-30s approval rating, and his legislative agenda was dead in basically every regard.

In a matter of weeks, he's passed a bipartisan gun control reform bill; a $282 billion bipartisan bill for domestic semiconductor manufacturing and research; and appears to be just days away from a vote on a climate change, energy and health care piece that was a huge part of his campaign.

As I said a few weeks ago, I think the idea that Congress "doesn't do anything" is one of the biggest myths in American politics. Just in the last few years we've had massive Covid-19 relief bills, major tax reform, a gun control bill, the USMCA, The First Step Act, a $1.2 trillion infrastructure bill and the latest semiconductor chips bill. Now we may get the largest climate change bill in American history, new rules on Medicare negotiating drug prices, and an extension of the Affordable Care Act.

As for the bill, there are a few things worth putting in bold print.

For starters, the whole way it came to be is a bit of a head-scratcher. Manchin first claimed he wanted to see the latest inflation numbers, then didn't wait, and now he trots out a bill called The Inflation Reduction Act when apparently the only thing about the bill that's truly ambiguous is whether it will reduce inflation. It'd be more accurately called the Climate Change, Medicare and Corporate Tax Bill; but that's not nearly as punchy (or politically savvy).

Still, Manchin seems to have pulled one over on Republicans and McConnell specifically, and I'll be curious to see if progressive Democrats praise him for that. My favorite part of the bill is the health care piece; especially the Affordable Care Act extension and the change allowing Medicare to negotiate certain drug prices. Only a narrow basket of drugs will be impacted, but they’re the ones with the least competition, and are therefore most prone to price gouging. This is a policy victory many Republicans and even former President Donald Trump pursued.

We still don't have the final text of the bill, and Democrat Kyrsten Sinema may want some changes, but it looks like we'll get a few big things on climate, the largest of which will be a massive set of tax credits that could remake how the U.S. generates electricity. We've seen previous tax credits drive down the costs of wind and solar, and cut carbon pollution, but this bill broadens the incentives in a big way. The credits can be used for any low or zero-carbon form of power generation. Economists who analyzed a previous version of this bill found such incentives were very efficient, "creating $1.5 trillion in economic surplus while eliminating more than 5 billion tons of carbon pollution,” according to The Atlantic’s Robinson Meyer.

These credits are also technology-neutral, meaning they can go toward things like nuclear power, which I believe will be key to beating climate change (yes, we are going to do an edition on that at some point). There is also a $7,500 rebate for electric vehicles and 10 years of subsidies for families to buy heat pumps, solar panels for their roofs, and electric water heaters. There is even money to go toward the production of domestic clean hydrogen. And the compromise: There are requirements to open up lands for oil and gas leasing in Alaska and the Gulf of Mexico, wherever leases are also available for solar and wind projects. This is something that should assuage folks who worry about boxing us into one kind of energy production — and it’s a compromise certainly worth making, at least for the near term.

As for inflation, I think the jury is still out. Economists like Larry Summers, who openly defied the Democratic party he supports and warned Biden's spending plan would trigger inflation, has said this bill is likely to lower the rate of inflation even if he's worried about a recession. It’s worth emphasizing that nobody is really arguing the bill will worsen inflation, which was a primary concern of mine a few weeks ago.

In sum, I like the rough outlines of what we know, and appreciate that this bill truly does represent a compromise, at least among Democrats, even if it doesn’t garner any Republican votes. It’s not a sure thing yet, and it doesn’t have to reduce inflation to be a good piece of legislation, but it’s both a lot narrower than what some folks wanted and a lot more fiscally responsible than what I was expecting. That’s typically how Congress works when it’s most effective, and usually a sign it’s a responsible piece of legislation.


Your questions, answered.

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A story that matters.

The University of Chicago's Institute on Politics published a new poll illustrating just how negatively Americans think of each other. The poll found that close to three-quarters of Democratic and Republican respondents viewed the other party as bullies who push disinformation, The Washington Post reports. About half of all Americans avoid political discussions entirely. Over 25% of all those surveyed said that, at some point, we may need to take up arms against the government — including 20% of Democrats and 36% of Republicans. Phillip Bump wrote about the results here.


Numbers.

  • 99 days. The number of days until the midterm elections.
  • 70%. How far The Inflation Reduction Act would get toward Biden's goal to cut emissions by 50%, according to Chuck Schumer.
  • $4,000. The amount of a subsidy some Americans could get to buy used electric vehicles under the new legislation.
  • $16 trillion. The size of Bernie Sanders’ proposed climate change plan when he ran for president in 2020.
  • 725. The length, in pages, of the climate change bill.

Have a nice day.

The U.S. Department of Agriculture says it plans to plant over one billion trees in the next decade to tackle climate change and respond to damage from wildfires. "Wildfires and other issues have devastated U.S. woodlands in recent years, and Forest Service arborists can’t keep up with replanting lost trees," the Smithsonian reports. "They’ve reforested just six percent of land damaged by fires, pests and extreme weather events, which has created a backlog of about 4.1 million acres." With money from the REPLANT Act and the bipartisan infrastructure bill, the department hopes to staff up and span out. 90% of U.S. adults favor planting more trees to absorb carbon emissions, according to a July 2022 survey.


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