President Biden signed the important Inflation Reduction Act into law. And, of course, Democratic Senators Joe Manchin of West Virginia and Kyrsten Sinema of Arizona held power to block this climate, medical care, and deficit reduction package. But they supported the bill, and each extracted a hefty price in exchange for their vote.
This legislation, though substantial, is a cutdown version of the President’s Build Back Better legislation, which Manchin and Sinema had blocked earlier. In the evenly divided Senate, each of their respective votes would be necessary to support legislation that Democrats introduce because all Republicans in the Senate oppose any legislation Democrats propose.
Much of the public praised these two Senators for their support of the critical legislation to address climate change and the long overdue plan to reduce medical care prescription costs. However, let’s look at the cost of getting Manchin and Sinema to vote for the Inflation Reduction Act.
After years of strong opposition from environmental activists, the questionable Mountain Valley Pipeline—a 304-mile gas pipeline cutting through the Appalachian Mountains—was stalled. In February, one of the pipeline developers warned that the many legal and regulatory obstacles meant there was a very low probability of the pipeline being completed.
But Manchin came to the rescue, securing an array of concessions for his state of West Virginia and the fossil fuel industry in exchange for his support of the Inflation Reduction Act.
He not only got support for the pipeline in his home state but also expedited approval for pipelines and other infrastructure nationwide as part of a broader set of concessions to fossil fuels.
As Manchin demanded, the measure requires the federal government to auction off more public lands and waters for oil drilling. In addition, it expands tax credits for carbon capture technology that could allow coal or gas-burning power plants to keep operating with lower emissions. Also, he secured a promise from Democratic leaders to vote on a separate measure to speed up issuing permits for energy infrastructure, potentially smoothing the way for projects like a natural gas pipeline in West Virginia.
Finally, Manchin won a concession that requires the department to continue to hold auctions for fossil fuel leases if it plans to approve new wind or solar projects on federal lands.
The controversial Mountain Valley Pipeline is a big win for the pipeline industry that, in recent years, has quietly become one of Manchin’s biggest financial supporters. Natural gas pipeline companies have dramatically increased their contributions to Manchin, from just $20,000 in 2020 to more than $331,000 this election cycle. He receives more money from this industry than any other Congressman–Democrat or Republican.
The climate change, medical care, and deficit reduction package is financed primarily by a few targeted tax increases. These tax increases included a 15 percent corporate minimum tax and an increase in taxes on carried interest income.
Carried interest is income going to the general partner of a private investment fund, which is treated as capital gains that let private equity managers pay a much lower rate on earnings than most people do on ordinary income. This is often called the “carried interest loophole,” which the Democrats were aiming to close. They were thwarted by Sinema.
Senator Sinema had revealed her priorities over several months. Preserving lower tax rates for corporations and wealthy individuals was chief among them, including favorable treatment for private equity firms. Financial services firms have long been among her most dependable donors. So, she held out to protect these entities.
To get Sinema’s support for the bill, Democrats agreed to protect companies owned by private equity firms from this new 15 percent minimum tax on billion-dollar corporations and completely drop the carried interest tax provision.
The changes to the 15 percent minimum tax will save the industry $35 billion.
Senators Manchin and Sinema are blatant examples of “He who pays the piper calls the tune.” The so-called Inflation Reduction Act is an excellent step forward; however, it could have been much better if Manchin and Sinema were not so beholden to their corporate benefactors.