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Why the Inflation Reduction Act isn’t a sure thing

There are still three outstanding questions.

Senator Kyrsten Sinema wearing red-framed glasses.
Sen. Kyrsten Sinema (D-AZ) previously opposed closing the tax loophole in Build Back Better.
Tom Williams/CQ-Roll Call, Inc via Getty Images

Sen. Joe Manchin (D-WV) is finally on board with Democrats’ sweeping budget reconciliation bill. But just because Democratic leadership and President Joe Biden have cleared their biggest hurdle, that doesn’t mean there aren’t others.

Last week, Manchin announced that he would support the Inflation Reduction Act of 2022, which includes significant climate, health care, and tax policy reforms. He was the most vocal holdout on Build Back Better, the previous incarnation of legislation addressing these issues, making his support especially significant.

“We reorganized the bill, if you will,” Manchin told CNN, of why he was backing the legislation now after previously balking because of the high inflation rate. “What we had before that, there were things in there that I considered ... to be inflammatory and I didn’t want that to happen.”

Despite Manchin’s backing, there are still outstanding issues that could affect the provisions in the bill or jeopardize its chances of passing altogether. Ensuring that sufficient Democrats sign on is a major concern in both the House and the Senate. And the narrow time frame that lawmakers have to pass the bill before recess also poses a challenge.

Below are three big questions that the bill’s future hinges on.

1) Will Sen. Kyrsten Sinema support it?

Besides Manchin, Sen. Kyrsten Sinema (D-AZ) was the other big holdout in the Senate on Build Back Better, and she hasn’t yet said where she stands on the Inflation Reduction Act.

Previously, she opposed closing the carried interest tax loophole — a key provision of the Inflation Reduction Act — and it’s possible that could be a sticking point again.

Closing the loophole would force money managers to pay the same tax rate on their compensation as other professions do. Currently, their income can be taxed at a lower rate of up to 23.8 percent, while income is typically taxed at up to 37 percent. Eliminating the loophole has been a central objective of Manchin’s. And this new proposal is also a critical part of the way the bill decreases the deficit, something else Manchin is very concerned with. If Sinema’s position is unchanged, that would put her in direct opposition with Manchin.

Sinema spokesperson Hannah Hurley told Bloomberg last week that the senator was still reviewing the bill and would wait to see what emerged from the Senate parliamentarian’s review. Manchin, meanwhile, has repeatedly said he’s interested in keeping the carried interest provision in the bill.

Although Sinema is an important swing vote, Manchin said he and Schumer didn’t include her in the latest round of negotiations because the West Virginia senator wasn’t sure these talks would result in a deal. Manchin has said, however, that the concerns she had about Build Back Better played a central role in the final outcome.

“She has a tremendous, tremendous input in this piece of legislation,” Manchin said in an NBC News interview Sunday. “She basically insisted no tax increases, [we’ve] done that. And she was very, very adamant about that, I ... agree with her.”

Previously, increases to corporate and individual tax rates were stripped from the House’s Build Back Better bill because of Sinema’s opposition.

2) What about House moderates?

Democratic House moderates are another contingent that might be disappointed by this iteration of the bill.

Previously, several moderate members including Rep. Josh Gottheimer (D-NJ) called for the full state and local tax (SALT) deduction — which is currently capped at $10,000 — to be added back into the legislation. That provision was so important to certain lawmakers that they adopted the mantra “No SALT, No Deal.” In the past, there had been no cap on this deduction, meaning people could pay lower federal income taxes since they were able to subtract their larger state and local taxes from their federal bill.

The entitlement primarily benefited homeowners and other, usually more affluent, Americans with higher state and local tax burdens, which led many Democrats to oppose its return. These Democrats argued it was essentially a tax break for the rich. As Manchin noted in a statement on Wednesday, he also opposes the inclusion of this provision and it is not included in the bill as is.

On Thursday, some members who previously pushed for the SALT deduction, including Reps. Tom Suozzi and Tom Malinowski, signaled that they would still support the legislation despite this omission. Other moderates — like Gottheimer — have yet to take an explicit stance.

The vast majority of moderates’ support is ultimately critical to the bill’s passage in the House, where Democrats have only a slim majority. After recess, the party will likely have a margin of only three votes in the House.

Progressives, meanwhile, have broadly sounded bullish on the bill even though it’s much narrower than what Democrats had originally hoped to pass. “If we can get it done, and I believe we can, I believe that there’s a real deal here,” Rep. Pramila Jayapal (D-WA), the chair of the Congressional Progressive Caucus, said in a CNN interview on Thursday.

3) Could the vote slip again?

The last uncertainty plaguing the bill is simply timing. Because the Senate’s annual summer recess is set to begin on August 8, that leaves just a week for Democrats to pass the bill before they head out.

That’s not a lot of time, and it’s further complicated by a recent surge in Covid-19 cases in Congress, which has meant members can’t be at the Capitol in person to cast their votes.

In the last week, multiple lawmakers have tested positive for Covid-19, including Manchin and Sen. Dick Durbin (D-IL), who announced his result on Thursday. Durbin will likely be back on the Hill in time to vote for this legislation, but it’s possible other lawmakers could test positive, too.

That’s a problem for Democrats because they need every vote from their 50-person caucus, plus Vice President Kamala Harris’s vote, in order to hit the simple majority threshold needed to approve a bill via budget reconciliation. Because no Republicans are expected to support this legislation, the entire caucus needs to be present in person.

The reconciliation process also presents another issue. Between now and the vote, Democrats have to wait for the Senate parliamentarian’s ruling, which will determine whether the provisions in the bill are sufficiently related to taxing and spending to be considered as part of budget reconciliation. According to Bloomberg, that review is expected to take into this week given that the bill is over 700 pages. If they fail to get the parliamentarian’s approval on certain measures, Democrats will have to tweak their bill and potentially remove some provisions. At that point, they can move the bill to the floor, but they’ll also have to hold a lengthy process known as a “vote-a-rama,” when senators will be able to submit amendments.

Because of how long both those steps are poised to take, Democrats could be looking at a final vote on the bill this weekend — or later. Any delays would also affect the timing of a House vote, which will probably happen in August if things go according to plan this week.

Update, August 1, 11:20 am: This story has been updated to include new comments from Sen. Joe Manchin about the Inflation Reduction Act.