A Manchin Miracle?

The West Virginia coal baron has stunned Washington and struck a serious climate deal with Chuck Schumer.

Me, I always had faith in Joseph Manchin III. 

You, of course, having become a bit cynical lately, may have looked at the million dollars he and his wife rake in annually from their coal business, may have picked up on the sadistic delight he takes in killing the hopes and dreams of Democrats, then bringing them back to life only to kill them again. You may have seen all of that and lost faith. But not me. 

I’m kidding, of course. I’m as stunned as you are. This evening, seemingly out of thin air, Manchin and Chuck Schumer put out a joint statement announcing they had come to terms on a deal – a bill, even – that they called the Inflation Reduction Act of 2022. I can’t ever recall a major deal being announced without the Capitol Hill press corps knowing that negotiations were even taking place. 

The outline of the deal, as announced by the pair, looks like this: 

That $369 billion for “energy security and climate change,” if it becomes law, will change the world. It represents the biggest climate investment made by any country ever, and it will unlock potentially trillions in private capital, which is waiting on the sidelines for the types of subsidies, credits and guarantees this bill will include. It’ll also spur other countries to make their own investments, not wanting to fall behind in the industry that will dominate the next century. It’s projected to reduce carbon emissions in the U.S. by 2030 by 40 percent. That’s huge. 

“An initial review of the agreement indicates that this will mark a historic direct investment in renewable energy and will unleash hundreds of billions of private investment for moonshot projects,” Rep. Ro Khanna told me this evening after the deal was announced. Khanna has spent months working with Manchin to keep him in talks, and it looks like that finally paid off. “Activists who have been insisting on getting something done on climate should feel proud that we’ve gotten to this point,” he added. I think that’s right, even if it doesn’t do everything it ought to. It at least gives humanity a shot. 

Climate hawks will criticize the bill for its “energy neutral” approach – in other words, the kinds of subsidies made available for clean energy are supposed to be available to projects that clean up dirty energy too, and cleaning coal is seen by many worse than a filthy pipe dream, but as a ruse actively deployed to stall the transition to clean, renewable energy. I’d say a few things to that: 

One, looking at the reality of our energy infrastructure, fossil fuels are going to be with us for a very long time. Reducing and/or sequestering their carbon emissions during the transition is essential. I don’t like that fact, but it’s the reality we’re dealt. If this money can spark some exponential technological development in that direction, we’ll all be better off. 

And two, if all that fails, and the carbon tech stuff is all fluff, subsidizing it was worth the payoff to Manchin to get the clean energy money, because there was no other way at this point, and if Republicans take Congress next term, there’s no telling when the window might open again. 

And three, it seems like Manchin extracted concessions that could make permitting future fossil fuel projects easier. That’s bad. But those are still fights to be had in the future, against a win today.

On the rest of the package, I obviously haven’t read the full bill yet, which is more than 700 pages long, but from what’s been known from previous talks, a few things are clear:

The 15% corporate minimum tax only hits companies with profits of more than a billion a year, and operates as a business version of an alternative minimum tax (AMT), which, if you’re one of my more well-off readers, you’re familiar with. This is payback from Manchin to McConnell for cutting him out of negotiations over the Trump tax cuts. He said so explicitly in a private meeting with No Labels awhile back, which we got audio of. 

The drug pricing piece allows Medicare to negotiate with drug companies to lower rates on some drugs. Devil is in the details, but it should lead to some real savings and is opposed with a frothing-at-the-mouth fury by Big Pharma. So a big deal if it happens. 

IRS tax enforcement: They propose to spend $80 billion over 10 years to beef up enforcement. Just the knowledge of that could reduce cheating by the rich. And the end goal here is to have better software that can use basic AI to check tax returns for anomalies. Once that’s in place, a lot of the cheating that goes on becomes much more difficult. 

The carried interest loophole allows hedge fund and private equity bros to pay a 20% tax rate on their income, while normal rich people are supposed to pay 37 percent. This legislation requires such partnerships to consider that income to be short-term capital gains, which is taxed at the same rate as income. It would fundamentally upend the PE and hedge fund industry, which is nothing but a good thing all around. That’s the piece that’s most vulnerable to being stripped out, but it has real potential to level the playing field in an important way. 

The expansion of the Obamacare subsidies will keep premiums from spiking just before the election. 

And the climate and energy piece you can read here. But it spends billions to boost clean energy manufacturing and provides ten years of certainty for tax credits, which is essential. It also restores much of the revolutionary Agriculture Title from Build Back Better, which I covered in this episode.

The Timing

I’m not saying we need to assign Robert Caro a new edition of Master of the Senate, but let’s pause to admire the way Schumer and Manchin navigated this. Bear in mind these are two people roundly and frequently derided for their hapless inability to negotiate. But Mitch McConnell, who the press loves to talk about as a Senate Master, recently threatened to stop a bipartisan bill that subsidized the American semiconductor industry if Democrats didn’t stop talking about passing a climate reconciliation bill. Manchin flipped out at him, saying he was just as bad as the lefties who wanted to hold up the infrastructure bill to get the climate bill done. Days later, Manchin announced he was done with the climate bill. 

Then the Senate passed the semiconductor bill shortly after noon today. Then, about four hours later, Manchin and Schumer announced that, actually, they had a deal on a climate bill. And a 700 page bill drafted. 

Was the entire walking-away theatrical? At minimum, it seems like they held the news of this deal until they’d safely passed the chips bill. Republicans were so mad this evening they voted down a veterans bill they had previously supported in overwhelming numbers. Just out of pique. 

I’m not used to Democrats playing their cards this well.

Okay, so will it pass? 

Don’t ask me about Kyrsten Sinema, because who knows. Will she blow this up by herself to stave off some corporate and Wall Street tax hikes? I genuinely don’t know. 

The second question is the House, and specifically Josh Gottheimer and his crew of folks who’ve been demanding an expansion of the SALT deduction. (My home-owning blue state readers with decent incomes know what that one is too.) Gottheimer has been saying “No SALT, no deal” from the very beginning, and this includes no SALT. But I spoke with a Democrat very close to Gottheimer this evening, and he said that because the bill doesn’t raise individual tax rates, and doesn’t really touch that portion of the tax code for anybody making less than $400,000, he believes that folks like Gottheimer and his ally on this fight, Rep. Tom Suozzi, will get behind the deal. 

And as another Democrat put it to me this evening, “Gottheimer has blown a lot of gas on his holding up the assault weapons bill to insist that his police funding bill be packaged with it. It’s going to be really hard for him to insist on both that and SALT.”

That leaves Sinema as the only hope for the financial industry in stopping this. Can she stand up to the entire party? I just don’t know.