A Sinematic Finish
Chuck resolves the plot, putting Dems on track for a happy ending
After a week of suspense, speculation, and intense Sinema-watching, Democrats secured their 50th vote for the Inflation Reduction Act last night, with Majority Leader Chuck Schumer (D-NY) signaling an intention to begin consideration of the reconciliation package on Saturday pending the blessing of the parliamentarian. Barring any procedural hiccups, this could set up passage of the bill as soon Monday, with the House returning soon after to send it to the President's desk.
Locking in Sinema's support at this juncture makes the parliamentarian's final "Byrd baths" of the bill's various sections the last major hurdle Democrats face before passage. Republicans are challenging every aspect of the bill, probing for weak spots in provisions that stray close to the line between budgetary and policy impact, or that otherwise run afoul of the Byrd Rule. Some portions of the bill have taken longer than others, and one core structural element of the bill—its drug pricing title—has been in flux for weeks. The bill's energy tax title features a number of targets for Byrd scrutiny ranging from content sourcing requirements for electric vehicles to labor stipulations for clean energy projects. Should any politically important elements run into trouble, Democrats would have to determine whether to redraft and resubmit or to drop and move on in the interest of time. Barring that, they hope to wrap up in time for a Saturday vote on a motion to proceed.
Proceeding to the bill, whenever it might occur, kicks off a process that should move fairly quickly: 20 hours of debate, divided evenly (Dems will yield back), followed by a rapid fire "vote-a-rama" in which Senators can offer as many amendments as they desire. With Sinema's public backing, Schumer can breathe easier about the possibility of rogue GOP amendments being adopted during the course of the legislative gauntlet, and Republicans can focus their attention on scoring political points rather than poison pills. [As discussed in last week's update, actually winning amendment votes requires proposed changes to be Byrd-compliant and, among other things, revenue-neutral or better lest they be subject to a 60 vote threshold.] Should any changes actually be adopted on the floor, Schumer would likely offer a "wraparound" amendment to restore the bill to its desired form before final passage, a tactic some including Manchin have previously expressed misgivings about.
So what did Schumer have to give up to close the deal? Sinema, whose consistent opposition to rate hikes helped both whittle down the bill's size and reorient its revenue structure, took aim at the bill's two primary tax increases. The bill's changes to carried interest treatment were struck altogether, a fact that featured into both her statement and virtually every headline associated with the announcement. [My friend Jim Lucier of Capital Alpha rightly called the carried interest provision the McGuffin in the IRA saga.] But the bigger change from a revenue standpoint, and to the broader business community, was a move to spare accelerated depreciation from the Book Minimum Tax, a change sought by everyone from the National Association of Manufacturers to ACOREto the Wall Street Journal editorial page. Together these changes created a significant revenue hole that had to be filled to satisfy Manchin's deficit reduction goals. To that end, Democrats tapped an old offset from the House-passed BBB, a 1 percent excise tax on corporate stock buybacks.
Details on the precise changes Sinema made to the book minimum tax are still forthcoming, and reports have been heavily inflected with manufacturing-centric messaging rather than cost recovery particulars. Initial scores of the respective changes come in at the low end, from the depreciation fix to the buyback tax, so there may be some attenuation beneath the surface, but make no mistake—even relatively minor changes to the book minimum tax are the primary concession, and the driver of the surprise pay-for swap. Sinema also scored at least one more parochial win for her state, securing $5 billion in funding for drought resilience funding supported by her western colleagues.
With Sinema’s backing, the path to passage is clear, even if the exact timeline remains somewhat in flux. If Democrats are to vote on Saturday, the proverbial pens need to be down on the final text in short order. With Manchin and Sinema’s terms in hand, nobody else would seem to have the leverage—or the chutzpah—to alter the deal as it stands. (Bernie Sanders has indicated that he will seek changes on the floor, but any such votes will fail, and he is certain to vote for the final product.) This leaves Senate parliamentarian Elizabeth MacDonough as the last source of any potential surprises, and even there, a motivated majority can theoretically work their will. The House stands return to return to Washington and pass the Senate version of IRA, which would then go to President Biden for his signature.
After 18 months of building the reconciliation plane in the air, Democrats are suddenly on a glide path to enactment.
[This is an excerpt from the August 5 PRG weekly reconciliation update. Read the rest of my firm’s reconciliation updates here. While you’re at it, check out this week’s episode of The Lobby Shop, where I give you everything you need to know about the reconciliation state of play in 15 minutes.]