Dems' climate and tax agenda to consume Congress in July

Democrats are taking tangible steps towards a deal on their party’s signature spending bill, expecting the proposal to dominate the rest of July and hoping it could reshape their political fortunes after six months of stasis.

Talks between Majority Leader Chuck Schumer and Sen. Joe Manchin (D-W.Va.) are beginning to yield concrete results on a potential climate, tax and prescription drugs package. Schumer told Senate Democrats recently that if he can reach a deal with Manchin, the bill could be on the floor as soon as this month, according to a person familiar with the negotiations.

Negotiators are still ironing out key details, but Democrats are signaling that as soon as next week they will begin arguing their case to the Senate rules chief on why the package should pass with a simple majority in the chamber. No one is getting their hopes too high in a party still reeling from Manchin’s rejection of Build Back Better, Democrats’ previous version of the legislation.

Democrats interviewed for this story ranged from near-certain there will be a deal to fretful that anything will ever materialize.

“I am generally optimistic. I’ll believe it when there’s a deal,” said Sen. Chris Coons (D-Del.) on Thursday. “I believe there is positive momentum, I believe there have been constructive conversations. But the specifics, the details, I think it’s best to let that work itself out.”

Democrats solved the easiest piece of their puzzle this week: finalizing a prescription drug pricing reform deal from last year, which both lowers prices and is expected to raise at least $250 billion in revenues. Democrats submitted that piece to the Senate parliamentarian for review, trying to ensure it doesn’t run afoul of the strict chamber rules that govern whether legislation can pass with a simple majority, known as budget reconciliation.

And they plan to soon submit an additional piece on a deal that extends Medicare solvency. Both those pieces are expected to have the support of all 50 Senate Democrats.

Shaving down the $555 billion energy package from the abandoned Build Back Better bill is proving tougher; Manchin is looking at energy spending of around $300 billion and ultimately new subsidies for electric vehicles could be cut, according to a second person familiar with the negotiations. Democrats are also trying to prevent health care premiums from skyrocketing this fall, and they need to detail tax increases and enforcement that would both pay for the bill and reduce the deficit, priorities of Manchin’s.

Roughly speaking, Manchin and Schumer are working toward legislation that provides $1 trillion in new revenues, half of which would go toward deficit reduction and half of which would go toward energy and health spending. Such a deal is hypothetical at the moment: The tax and energy pieces remain in major flux.

“Senator Manchin has repeatedly expressed his concerns about rising inflation, a pending recession and the state of American energy security. He continues to work in good faith to see if there is a pathway forward to shore up domestic energy production and reduce emissions, lower health care costs for seniors and working families, and ensure everyone is paying their fair share of taxes,” said Sam Runyon, a spokeswoman for Manchin.

Schumer declined to comment on negotiations but said recently that he and Manchin are “continuing to have very good and productive discussions.” Both men are keeping their talks close to the vest given their up-and-down history: Manchin and Schumer entered into a secret reconciliation agreement last July, Manchin rejected President Joe Biden’s Build Back Better bill in December and Manchin blanched at both Biden and Schumer’s attempts to weaken the legislative filibuster this year.

The Schumer-Manchin negotiations come amid a mixed backdrop for Democrats, who have a shot at keeping control of the Senate but are battling Biden’s unpopularity and public outrage over rising prices. Other pieces of Democrats’ agenda regarding child tax credits, education and senior home support are almost certain to be sidelined due to Manchin’s narrower aspirations.

Another possible casualty moving forward, according to multiple sources, are more federal subsidies for electric vehicles and new infrastructure spending to support them. Manchin has publicly panned over-reliance on electric vehicles as “stupid” when other countries control much of the supply chain for critical parts and consistently questioned more federal investment for the growing industry. Separately, car companies are asking for Washington to lift a cap on how many electric automobiles are eligible for existing tax credits.

Manchin is also interested in advancing more domestic energy talks outside of the current negotiations, having held bipartisan discussions with the GOP earlier this year.

“It’s no secret that Sen. Manchin — and many others on both sides of the aisle — believe that permitting reform is essential to American energy security and our ability to decarbonize,” Runyon said, adding that Manchin will “explore all options to responsibly address these issues.”

Manchin previously signaled he would not support Direct Pay, which essentially gives cash to clean energy developers to free companies from having to rely on tax credits. Some Democrats and interest groups are making a late push with Manchin to include direct pay tax credits for clean manufacturers, adding those incentives would be technology neutral. Democrats are also discussing barring large power companies from the Direct Pay program and focusing on nonprofits.

In order to hit his rough goal of $500 billion in new spending while also incorporating extensions for expiring Obamacare subsidies that could cost roughly $200 billion, more energy spending may also be jettisoned.

Tax policy remains unfinished as well. Democrats have not finalized which tax increases on corporations and the wealthy will be used and international taxation policy remains in flux, according to a person with direct knowledge of the negotiations.

The push to wrap up the package comes as Democrats face two imminent deadlines. While the Obamacare subsidies are technically set to expire at the end of the year, insurers are locking in rate increases throughout the summer and fall. The practical deadline for staving off those rate increases is likely sometime in August. On top of that, Senate rules dictate that Democrats have only until the end of September to pass a party-line bill, otherwise they’d have to start from square one.

And there’s no margin for error. Senate Democrats need all 50 of their members’ support in the evenly divided Senate, and that means yes votes from Manchin and Sen. Kyrsten Sinema (D-Ariz.), plus a return from Sen. Patrick Leahy (D-Vt.), who is recovering from a broken hip. Coons said he’s “communicated” with Leahy and is “encouraged by his progress.” Leahy’s office hasn’t yet indicated when he’ll return to the Senate, though he was discharged from the hospital this week.

Some Democrats are concerned that Sinema is not involved in the Manchin and Schumer talks, given her different view of tax policy than her West Virginia colleague, who is more keen on reversing the Trump tax cuts than she is. Sinema maintains a line of communication with Democratic leadership, according to a Democratic aide.

Hannah Hurley, a spokesperson for Sinema, highlighted the Arizona Democrat’s previous statements supporting the $1-trillion plus in revenue options the White House has presented as part of its proposed framework last fall for Build Back Better.

A separate bipartisan competition bill is also in danger as the party-line bill advances. Senate Minority Leader Mitch McConnell says he will cut off talks on the legislation, which included $52 billion for microchip manufacturing, if Democrats continue to pursue their party-line bill. Democrats so far are unbowed, in part because there’s no deal on that legislation yet anyway.

Zack Colman contributed to this report.

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