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Headshots of Senators Chuck Schumer, on left, and Joe Manchin, on right, from Bloomberg

Financial Planning > Tax Planning > Tax Reform

Schumer-Manchin Tax Bill Is in Peril: Valliere

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What You Need to Know

  • Sen. Kyrsten Sinema, D-Ariz., says she won't vote for the bill if it eliminates the carried interest tax break.
  • Schumer said Thursday the Senate will vote soon on the bill.
  • The CBO says the bill would cut deficits and net taxes once it is phased in.

The Inflation Reduction Act of 2022 is “in trouble,” according to Greg Valliere, chief U.S. policy strategist for AGF Investments.

Why? Senate Democratic leaders are now “scrambling to appease” Sen. Kyrsten Sinema, D-Ariz., who has made demands this week to colleagues in private negotiations that she “wants no carried interest provision or big corporate tax hikes — or she will walk, leaving Democrats one vote short of victory,” Valliere said Thursday morning in his Capitol Notes email briefing.

Senate Majority Leader Chuck Schumer, D-N.Y., said Thursday afternoon on the Senate floor, however, that the Senate will vote “soon” on the Inflation Reduction Act.

“I expect we will have some late nights and extended debates here on the floor,” Schumer said. “But in the end Democrats are going to make good on our word to pass the Inflation Reduction Act.”

Schumer said that the Senate expects to vote on the motion to proceed to the reconciliation legislation, or Inflation Reduction Act, on Saturday afternoon.

The carried interest provision, “like Rasputin, seemingly cannot be killed,” Valliere said. “Sinema wants it out of the final bill, and she probably will succeed.”

Also, the proposed 15% minimum corporate tax “may have to be scaled back to appease her,” Valliere said. Bloomberg reported that changing the tax provisions “risks irking” West Virginia Senator Joe Manchin, who negotiated the package with Schumer.

“Manchin has said he is ‘adamant’ that the carried interest change remain in the bill,” Bloomberg reported.

The outlet reported Wednesday that Manchin told reporters he has not heard of Sinema trying to remove the carried interest provision. Hannah Hurley, a spokesperson for Sinema, declined to comment about any requests to change the bill, Bloomberg said.

Complicating these negotiations, according to Valliere, is “the likelihood that several provisions may have to be abandoned after the Senate parliamentarian rules on what can be considered under the complicated reconciliation process. At risk in the negotiations are the electric vehicle provision, capping insulin costs, leasing of public lands for energy production, and the tax provisions.”

The Inflation Reduction Act “will either get smaller or it will die in the Senate,” Valliere opines.

“The current bill is filled with pork (see this morning’s Wall Street Journal editorial) and it gives Republicans a strong argument during this fall’s campaign that more taxes and spending will harm an economy facing a potential recession,” Valliere said.

CBO Score

On Wednesday, the Congressional Budget Office released its score of the bill, stating that the legislation would reduce deficits by $305 billion. CBO also said the bill would reduce net spending by almost $15 billion through 2031 and, once phased in, slightly cut net taxes by about $2 billion per year.

The Committee for a Responsible Federal Budget estimated the 20-year impact of the bill.

In a note Thursday, the committee said its estimates shows the legislation “would reduce the national debt by nearly $2 trillion over the next two decades. Even with the ACA subsidies extended, the bill would retain more than half of its net deficit reduction.”

The Committee said Wednesday in a note that the Inflation Reduction Act would “reduce budget deficits by over $300 billion in its first nine years, but much of the savings would take time to materialize.”

The committee estimates the bill would reduce deficits “by $1.9 trillion over two decades, including interest savings. Assuming a permanent extension of the expanded Affordable Care Act (ACA) subsidies, the bill would reduce deficits by $1.1 trillion with interest.”