Why so many economists are all-in on the Manchin-Schumer deal
The overwhelming consensus among three leading experts is that the Inflation Reduction Act, while not a perfect deal, includes provisions that will fight inflation in the short and long term.
FIRST THINGS FIRST
As Senate Democrats continue consideration of the Inflation Reduction Act — the climate, health care and tax package Sens. Joe Manchin and Chuck Schumer announced last week after days of secret negotiations — they’ve received a groundswell of support from top economists who agree with the party line that the bill would lower costs for working families.
126 of them signed a letter urging Congress to pass the legislation, which Democrats plan to pass using a Senate process that enables them to bypass Republican opposition, as soon as possible.
Alan Binder, one of the letter’s signatories and a former vice chair of the Federal Reserve and a member of President Bill Clinton’s Council of Economic Advisers, said he was shocked and elated when he heard the news of Manchin and Schumer’s agreement.
He acknowledged on Wednesday during a press call with reporters that although it’s not a perfect bill, it’s a good bill that represents a trifecta from an economic point of view.
First, the IRA invests $369 billion in climate and energy provisions — the largest-ever US investment towards environmental justice — to accelerate the buildout of renewable energy, speed up the adoption of electric vehicles and bring energy-efficient technologies to low-income and minority communities.
“This is not trivial by any means,” Binder said of this significant down payment to address the climate crisis.
Second, he said that it’s not an accident that prescription drugs are cheaper in Europe: It’s because their governments negotiate prices with pharmaceutical companies. The IRA would enable Medicare to do the same for a handful of drugs, which would lower costs, especially for seniors.
“We should have been doing it in 1993,” Binder said, alluding to when then-First Lady Hillary Clinton spearheaded a push for health care reform during her husband’s administration.
The IRA takes a good step to reduce the budget deficit by approximately $306 billion over a decade, which is the third reason Binder supports the legislation.
Joseph Stiglitz, one of seven Nobel laureates who signed the letter, and former chair of President Clinton’s CEA, said the Inflation Reduction Act is legit because it addresses health-care costs with extended tax credits through the Affordable Care Act, which is anti-inflationary in the short term.
Meanwhile, Stiglitz said raising the corporate minimum tax rate will help tamp down inflation in the long term and help restore global credibility for a US government that has persuaded many other countries to agree to a 15-percent rate but has yet to do so itself. And he predicted the IRA would do more to lower inflation than the Fed’s recent hikes in interest rates.
Critics say that corporations will simply shift their tax burden to consumers or workers.
But Stiglitz rejected this claim as weak, right-wing rhetoric untethered to any economic analysis.
“Revenues are being raised in this bill through raising the corporate minimum tax and through closing loopholes — ways that have the least likelihood of being shifted either on to consumers in higher prices or onto workers in the form of lower wages.”
Kimberly Clausing, chair in tax law and policy at UCLA School of Law and another letter signatory, echoed the popular sentiment that there’s still work to be done on deficit reduction and tax reform beyond the IRA.
“You can’t be more ambitious than the 50th senator,” she said, speaking to the realities of an equally split upper chamber.
But Clausing added that Congress should be applauded for putting forward a deficit-reducing piece of legislation since proposals like the IRA are rarely put forward.
She explained that the IRA’s investments in the IRS are an underrated provision that will pay for themselves because the agency is currently “outmanned and outgunned” by people evading taxes.
When asked how quickly Americans can expect to see relief if the bill passes, Binder said that the prescription drug provisions will have an immediate impact while the deficit-reduction piece will take some steam out of the economy in the “near-ish” term.
AND WE HAVE A SCORE — The Congressional Budget Office, the US federal agency that provides Congress with economic and budgetary analysis, scored the IRA and estimated it would shave $102 billion off the deficit over the next 10 years. The score acknowledges the additional $203 billion in revenue that Democrats plan to generate through enhanced IRS enforcement but excludes the line item from its estimate. Read the full analysis
SINEMA WATCH — All eyes have been on Democratic Sen. Kyrsten Sinema of Arizona since Sens. Manchin and Schumer announced the IRA last week to see if she’ll support the legislation.
Remember: The Senate is split 50-50 between the two parties. And while Democrats can pass the bill without Republican support as long as their ranks unite behind it in full with Vice President Kamala Harris breaking the tie.
Manchin and Sinema share in common swing-vote status that has bolstered their power to shape or tank altogether key planks of the Democratic Party’s agenda — and the IRA has been no different.
But their priorities diverge in some areas, which makes navigating the preferences of his caucus without losing a single vote a delicate thread to weave for Senate Democratic Leader Schumer.
A spokesperson for Sen. Sinema on Wednesday morning said she was taking her time to review the bill and declined comment until the Senate official responsible for determining if the bill meets the criteria to pass with a simple majority publishes her decision.
Reports emerged on Wednesday afternoon that Sinema could propose two changes that would keep what’s known as the carried interest loophole and add several billion dollars in drought funding. (The carried interest loophole allows investment managers to treat certain interest payments as capital gains instead of standard income, which they would pay a higher tax rate on.)
There’s no word yet on whether carried interest is on the chopping block and if Sen. Manchin would still support the bill if the provision fell out.
— What her colleagues are saying: “I just don’t know where she stands at this point and I don’t want to presume anything,” Dick Durbin of Illinois, the number-two Senate Democrat, said to reporters. “She was kind enough to call me while I was recovering [from COVID] and we talked for a few minutes. She didn’t tell me or give me any signals as to where she’s going on this bill.”
POLL-A-PALOOZA — A flurry of polls dropped on Wednesday touting the popularity of the Democrats’ climate, health care and tax plan.
— Here’s a snapshot:
73 percent support for “allowing Medicare to negotiate some prescription drug prices”
76 percent support for “placing caps on prescription drug price increases”
73 percent support for “limiting annual out-of-pocket prescription drug costs for Medicare beneficiaries to $2,000”
56 percent support for “extending Affordable Care Act subsidies that are set to expire at the end of the year”
Strong support by 41 points (65-24%) for Biden and Democrats’ new economic plan, known as the Inflation Reduction Act
Independents: +40 (61-21%)
Among Non-College College Educated: +41 (64-23%) …
Among Educated: +43 (69-26%)
+51 (73-22%) support for the Inflation Reduction Act.
61% support (14% oppose) lowering "the cost of prescription drugs by allowing Medicare to negotiate drug prices for the first time while capping out-of-pocket costs at $2,000 a year" in the Inflation Reduction Act"
Among people 65+, support reaches 72-11%.
Among independents, support reaches 61-13%
The White House and advocacy groups aligned with the Biden administration flooded the zone with press releases, tweets and soundbites of featuring the data points. That, of course, is what you’re supposed to do when public opinion is in your favor.
But the vigorous effort from the administration, congressional Democrats and outside groups also speaks to the fact that this IRA, as popular as it is among most Americans, isn’t a slam dunk to pass quite yet and will require a consistent, unified messaging campaign until it does.
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TODAY IN POLITICS
President Biden this morning will virtually receive his daily intelligence briefing with Vice President Harris. This afternoon he will host a virtual roundtable with business and labor leaders on the Inflation Reduction Act.
The vice president this afternoon will travel to Boston to meet with state legislators and local leaders on reproductive rights. She will then travel to Martha’s Vineyard for two Democratic National Committee fundraisers before returning to Washington, DC this evening.
Second Gentleman Doug Emhoff and AmeriCorps CEO Michael Smith will visit Civic Works Urban Lot. This program transforms vacant and abandoned lots in Baltimore City into community gardens and green spaces, and assists AmeriCorps members in building a green space to improve the city’s climate resilience.
The Senate is in and this afternoon will take two votes, including one to confirm Roopali Desai to be US Circuit Judge for the Ninth Circuit.
The House is out.
RIP — Republican Rep. Jackie Walorski of Indiana on Wednesday was killed in a car accident in her congressional district, House Republican Leader Kevin McCarthy confirmed in a tweet. Read the tweet
Two of her staffers — District Director Zach Potts and Communications Director Emma Thomson — also died as a result of their injuries. The sole passenger in the other car involved in the crash was also pronounced dead at the scene, a local official said.
Speaker Pelosi ordered the flags at the US Capitol to be flown at half-staff to honor Rep. Walorski. The White House will also fly flags at half-mast today. Read Pelosi’s statement