Some elements of a wealth tax favored by President Joe Biden that was blocked multiple times by Senator Joe Manchin (D-WV) are back in play following the Wednesday afternoon announcement that Manchin and Senate Majority Leader Chuck Schumer (D-NY) struck a long-awaited deal on legislation to reform the tax code, cut healthcare costs and combat climate change.
The bill, dubbed The Inflation Reduction Act of 2022, would make investments over 10 years totaling more than $600 billion, to be fully paid for by closing tax loopholes on the wealthiest Americans and large corporations.
Per the bill’s one-page summary, it offers $433 billion in new spending, with $369 billion of that funding going toward climate change and energy security and $64 billion to Affordable Care Act extension. Some of that money be used as tax credits for renewable energy, hydrogen, nuclear and offshore wind. The bill would raise $739 billion in revenue, most of it through an increase in the corporate tax rate to 15% ($313 billion) and prescription drug reform ($288 billion). Increased IRS tax enforcement is projected to raise another $124 billion and closing the carried interest loophole is expected to raise $14 billion.
The bill aims to chop $300 billion off the deficit from what remains of the $739 billion in projected revenues after covering the $433 billion in spending.
Schumer and Manchin said the bill would be taken up next week ahead of the August recess, scheduled for Aug. 8-Sept. 5. Because it is a budget reconciliation bill, it only needs 51 votes in the Senate—or the support of every Democrat, with Vice President Kamala Harris acting as tiebreaker.
The surprise deal, fresh on the heels of the Senate passing sweeping $280 billion bipartisan legislation earlier Wednesday to subsidize the domestic semiconductor industry, brings fresh hope to Democrats that at least a smaller version of President Biden’s stalled “Build Back Better” economic agenda will advance and deliver on some key party priorities before the November midterm elections.
Manchin had appeared to essentially kill off climate action legislation two weeks ago when he again came out against raising taxes on wealthy Americans and refused to support more funding for climate action. The new agreement came somewhat suddenly after Manchin indicated that he would support a narrower package, citing the need to address inflation.
A statement released by Manchin about the deal said the Inflation Reduction Act of 2022 will address record inflation by paying down the national debt, lowering energy costs and lowering healthcare costs.
“Over the last year, leaders in Washington have ignored repeated warnings about the severe threat of inflation and the consequences of unprecedented domestic spending. Despite these concerns and my calls to give the country time to fully realize the impacts of such historic levels of spending and our inflation crisis, many Democrats have continued to push for trillions more in spending to meet a political deadline. As difficult as it is for some to hear, political calls to action that ignore the severity of the crises we face and will continue to face are a recipe for national disaster,” Manchin’s statement read.
“We must be honest about the economic reality America now faces if we want to avoid fanning the flames of inflation. At its core, the purpose of reconciliation is to get our economic and financial house in order. Contrary to foolish talk otherwise, America cannot spend its way out of debt or out of inflation. With respect to my position, I have never and will never walk away from solving the problems facing the nation we all love. I strongly support the passage of commonsense policies that reduce inflation and focus on the major challenges confronting America today and in the future.”
“It is commonsense that a domestic corporate minimum tax of 15% be applied only to billion-dollar companies or larger ensuring that America’s largest businesses are no longer able to operate for free in our economy.”
Senator Joe Manchin (D-WV)
The statement continued to say that the 725-page bill would dedicate hundreds of billions of dollars to deficit reduction by adopting a tax policy that “protects small businesses and working-class Americans while ensuring that large corporations and the ultra-wealthy pay their fair share in taxes.”
Notably, the bill excludes surtaxes on people making at least $10 million a year, instead targeting the wealthy through increased IRS enforcement and taxing unrealized capital gains.
Manchin continued to say that tax fairness is vital to the nation’s economic future. “It is wrong that some of America’s largest companies pay nothing in taxes while freely enjoying the benefits of our nation’s military security, infrastructure and rule of law. It is commonsense that a domestic corporate minimum tax of 15% be applied only to billion-dollar companies or larger ensuring that America’s largest businesses are no longer able to operate for free in our economy.”
He added that the tax code should not favor “red state or blue state elites with loopholes like SALT and should focus more on closing unfair loopholes like carried interest.”
Back in late March, the Biden Administration, as part of its 2023 fiscal-year budget, proposed directly taxing the wealth of America’s mega-rich for the first time. Biden’s proposed “minimum tax on billionaires” sought to impose a 20% minimum tax on households worth over $100 million (about 30,000 families or .01% of Americans) and would target unrealized capital gains.
Manchin said on March 29 he would not support the wealth tax, effectively killing it as the proposal would require 100% Democratic support in the Senate without any Republican votes.
At the time, Manchin said taxes should be applied to earned income, not to unrealized capital gains like stocks and bonds that have gained value since their purchase and are untouched by the IRS under the current tax system.
Biden, Murray voice support
President Biden was quick to offer his support for the agreement in a statement released by The White House Wednesday, and urged the Senate and House to move quickly with the August recess looming.
“And we will pay for all of this by requiring big corporations to pay their fair share of taxes, with no tax increases at all for families making under $400,000 a year.”
President Joe Biden
“This is the action the American people have been waiting for,” Biden said. “With this agreement, we have a chance to make prescription drugs cheaper by allowing Medicare to negotiate lower prices and we can lower health insurance costs for 13 million Americans, by an average of $800 a year, for families covered under the Affordable Care Act.” He also touted the bill’s proposals to address deficit reduction, improvements to energy security and the climate crisis.
“And we will pay for all of this by requiring big corporations to pay their fair share of taxes, with no tax increases at all for families making under $400,000 a year,” Biden said.
Senator Patty Murray (D-WA), Chair of the Senate HELP Committee, also released a statement voicing her approval for the agreement, and highlighting the wealth tax.
“Critically, this legislation is all fully paid for by making sure the very wealthiest and giant corporations simply pay their fair share in taxes,” Murray said.
Road to pass not completely clear
Despite Wednesday’s unexpected agreement, the path forward for The Inflation Reduction Act of 2022 is not assured. Notably, Senator Kyrsten Sinema (D-AZ), who has objected to proposals to tax the wealthy, did not sign on to Manchin’s statement and she has so far offered no comment on the agreement. Some House Democrats have also publicly opposed taxing the wealthy, particularly those representing affluent blue-state districts that were hit by the elimination of the state and local tax (SALT) deduction imposed by Republicans in 2018.
The House begins a five-week getaway from Washington as the calendar turns to August, although Majority Leader Steny H. Hoyer (D-MD) warned that members may return early, likely in the last two weeks of August, if the Senate passes a reconciliation bill, sending it to the House for a vote.
Senate Minority Leader Mitch McConnell (R-KY) told Reuters on Thursday that Republicans will fight the bill “as hard as we can,” predicting it would prove to be a disastrous job killer for American families.
“What’s happening here is that Manchin and Schumer have reached an agreement that is absolutely horrendous and totally unnecessary given the inflation the Democrats have already created,” McConnell told Reuters. “Now they want to pass job-killing taxes, as well as install socialist price controls, which will mean fewer people benefiting from cures. So that’s the issue that we’re headed toward, and it’s an unmitigated disaster for the country and we’re going to fight it as hard as we can.”
EDITOR’S NOTE: This article was updated Thursday to include McConnell’s reaction to the deal.
SEE ALSO:
• Biden’s War on Wealth: 4 Proposals to Raise Tax Revenue
• Biden Ponders Major Tax Hikes for Corporations, Wealthy
• Millionaires Want Billionaires to Pay More Taxes
• ‘Delayed’ Retirement Provisions Survive Massive House Spending Bill