Today, Explained - Did Joe Manchin just save the planet?

Episode Date: August 3, 2022

Probably not, but he did finally compromise on the Inflation Reduction Act (née Build Back Better), which could be the most significant climate spending bill in US history. Vox’s Li Zhou and Rebecca Leber explain. This episode was produced by Victoria Chamberlin and Hady Mawajdeh, edited by Matt Collette, fact-checked by Laura Bullard, engineered by Paul Mounsey, and hosted by Sean Rameswaram. Transcript at vox.com/todayexplained   Support Today, Explained by making a financial contribution to Vox! bit.ly/givepodcasts Learn more about your ad choices. Visit podcastchoices.com/adchoices

Just when you thought Congress couldn't get anything done, they go and get something done and totally redeem themselves. Is that how you feel right now, Wei? I would not go that far. But this is an exciting moment, and this bill would be significant if it does pass. How significant? Historic investment in climate, huge policy change for health care, and major updates to the tax code that could make corporations and wealthy individuals pay more. Without any new taxes, now people make it under $400,000 a year. It seemed like no one saw this coming.

It's been, as we know all too well, a will they won't they for almost a year now. Is it going to pass the House? So, that way. And I cannot vote to continue with this piece of legislation. This was a shock for a lot of people. Build Back Better, by any other name. Ahead on Today Explained. BetMGM, authorized gaming partner of the NBA,

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BetMGM operates pursuant to an operating agreement with iGaming Ontario. Today, today explained. Who could blame you if you were caught off guard by West Virginia Senator Joe Manchin's Today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today, today been talking to economic experts, including Larry Summers, who's a notorious inflation hawk, who has reassured him that actually these investments are not going to add to inflation. And that's something that potentially contributed to his decision. This is fighting inflation. This is all about the absolute horrible position that people are in now because of the inflation cost. Additionally, there's an interesting timing element where previously Senate Minority Leader Mitch McConnell had threatened to hold this other bill hostage if Democrats moved forward with budget reconciliation. That package includes roughly $52 billion in funding for U.S. companies to produce semiconductors.

That bill, which was an investment in semiconductors known as the CHIPS Act, passed last week. This stunned not only a lot of the fellow Democrats, but certainly stunned Republicans, because as we all remember, you know, Mitch McConnell put that line in the sand saying they were not going to pass this CHIPS bill if there was going to be this larger reconciliation effort. A couple hours after it passed, Manchin announces this agreement. So there's some speculation that, OK, you know, McConnell lost his leverage and then Democrats decided to move forward. So for once, the Democrats kind of juked the Republicans. It's unclear how for sure that is, but that is certainly one interpretation of what's taken place. Okay. Well, let's talk about what is in this massive spending package. First of all,

I guess, how much money are we spending here? So we're spending $433 billion. A lot of money. It's a lot of money. And then revenue-wise, the bill is expected to bring in $739 billion. Net, that amounts to $300 billion more in revenue than in spending. And that funding is going to be used to pay down the deficit. Interesting. And what are the highlights in this package? So three big sections of this package. We have health care, taxes, and climate.

Perfect. Let's talk about health care first. The two big health care provisions. The first is Medicare will finally be allowed to negotiate on drug prices. Now, this will allow health and human services to negotiate cheaper prices for 10 of its most expensive medications, things like Eliquis, a special type of blood thinner, for example. So what we're dealing with now is drug companies set the prices for different prescription drugs. And that means those prices can be exorbitant, can be incredibly high.

When we look at the specifics, though, it only affects a small subset. So this begins in 2026. That year, Medicare will be able to negotiate 10 drugs. The next year, they'll be able to negotiate 15. Following year 15 and then the fourth year, 20 drugs. The next year, they'll be able to negotiate 15, following year 15, and then the fourth year, 20 drugs. So we're still only talking about a narrower subset of things that they'll be able to focus on. Another important aspect of this legislation is its cap on medical out-of-pocket spending. Previously, patients faced costs as high as $30,000 a year. Consider the average Medicare patient earns only $29,000 a year,

and you see how huge of a burden that is. Well, now, Medicare will not make patients spend more than $2,000 a year out of pocket. What about taxes? What did Joe Manchin want about taxes? So, on taxes, you have a new corporate minimum tax rate. Companies that make at least a billion

dollars a year are supposed to pay 21% right now. A lot of them don't do that, as you can probably expect. You know, we talk a lot about Amazon, Google, many corporations found ways to find deductions, you know, do whatever they have to do to get around that. So this would require them to pay a minimum of 15%.. No matter what? No matter what. No loopholes. I imagine there's probably a way to get around it. So it's a great time to be a corporate tax lawyer, perhaps. Yeah, very, very lucrative time for you. Okay. Is there anything to do with just regular people's income taxes? Semi-regular people, I would say. So there's one loophole that this bill would also close known as the carried interest tax loophole.

So currently, if you are a money manager, someone who works for hedge fund, private equity, things like that, income from that is taxed at a lower rate. So roughly 20 percent. Greed is right. Greed works. Whereas typical income is taxed at 37%. So that's a huge difference. And this is a little complicated, but now all the money managers out there have to sit on their money longer if they want that 20% tax rate. What Biden and Democrats have been clear about is they do not want to increase taxes on anyone making $400,000 or less per year. And so this bill does not do that. They're very clear that they want to target these corporations at wealthy individuals. Maybe we can play like the tiniest violin for all

the money managers out there. Okay, give me the third thing. The third thing is a massive budget boost for the IRS. They're going to get $80 billion more in funding. And a huge chunk of that is to help them enforce tax collection. Right. It's like a wasteland over there or something. Unfortunately, it is. I think staffing is down significantly. You know, computer resources, technology, not up to date. This money is intended to help them get there. And that's expected to bring in about, you know, $120 billion in revenue as well. Okay, so we got healthcare, we got taxes. This brings us to climate. Joe Manchin famously drives a Maserati and has a houseboat, loves coal. What does Joe Manchin want on climate? He was down to do pretty significant investments in

climate. It's about $369 billion total that they're going to be putting into tax credits to incentivize manufacturing of clean energy, to incentivize people to drive electric vehicles, to invest in clean energy for their homes, and to also address the impact of pollution in different places and help provide grants for communities that have historically faced consequences from different infrastructure projects. Okay, well, we're going to get more into the climate stuff later in the show, but a lot of this sort of sounds like Biden's Build Back Better agenda, right? It's like bits and pieces of it.

It's a rebrand of Build Back Better, for sure. This is like when Kentucky Fried Chicken went to KFC. It went from Build Back Better to the Inflation Reduction Act. Right. Okay. What did we miss? What did we not get? Like I remember what community college, daycare stuff, preschool, that all fell by the wayside. To give you a sense of how this legislation has changed, last July, the agreement Democrats came to was a $3.5 trillion agreement of legislation. In November, the House passed a $1.75 trillion bill. This bill includes just over $400 billion in spending. So this is a massively pared down bill. And as you mentioned, it does not include paid family leave. It does not include child care subsidies, universal pre-K, free community college,

a lot of these ideas and goals that Democrats originally had for the legislation. And do we assume that's because Joe Manchin could not sustain that stuff? Correct. This is a no. This has been in the ether now in Washington for about a week. Is there any Republican support whatsoever or are they just real mad? Absolutely no Republican support. And Democrats never expected that because they are trying to do this on their own. And this can pass on their own? It can, depending on a couple of outstanding factors that we don't yet know the answer to.

Although Manchin is on board, Kyrsten Sinema hasn't announced where she stands yet. And as many people probably remember, she's the other senator who was a huge holdout on the original Build Back Better bill. Specifically related to this bill, she has been opposed to closing the carried interest loophole. And so there's a question of, you know, is she going to push to take that out potentially in order to get her support? What? She wants to keep the tax loophole open? Yeah, she wants to keep that loophole open right now. Is there anything else?

Simply procedural stuff that Democrats need to get through because they are using this unique budget reconciliation process. Oh, is this the old parliamentarian? Parliamentarian's back. Classic parliamentarian. It is an absurd process that we allow an unelected staff or somebody who works for the Senate, not elected by anybody, to make a decision. So right now, the bill is undergoing what's known as the birdbath to determine if...

The birdbath? What? If all the policies in it actually affect taxing and spending enough in order to be considered part of budget reconciliation. If the parliamentarian decides that they are, that's fine. They move forward. I don't care how the parliamentarian rules. No parliamentarian should have that power. If she decides that they're not, they'll likely have to strip some of those provisions out of the bill. So we could see this bill change a little bit between now and a final vote. And then I guess, sorry, there's two other things. Oh, my God.

There's two other things. One of which is relatively straightforward. It's just going to be painful, but it is going to be done, which is the voterama, which is late night, vote in session, lots of amendments. Republicans probably going to be forcing some tough votes, either trying to cut stuff from the bill or trying to make Democrats uncomfortable. So that's just painful, but very doable. Other thing is this question of, you know, we've seen a surge of COVID-19 cases in the country as well as in Congress. And oh, my goodness, the Senate does not vote by proxy like the House does. So everyone has to be present.

Incredible. So if Sinema is on board, if the parliamentarian is on board, if the voterama happens without a hitch, and if no one gets COVID, then maybe this happens. Yes. Sometime in the next few months. Yeah, yeah. The hope is as soon as possible, mostly because lawmakers love their recess and that's coming up very soon. If something goes wrong in the cinema part or the parliamentarian part or the Voterama part or the COVID part, do they have to start over or does it just prolong it a little bit? There is a lot of interest in trying to get this done quickly. And notably, there is a September 30th deadline for when Democrats can continue to use this iteration. So they have to try to get something done before then.

Okay, September 30th. Yep. Recess and deadlines. It's just like grade school, less functional. Classic Congress. Lee, Zoe, Vox, in a minute, more on the game-changing climate part of this bill. I'm Sean Rottmester. It's Today Explained.

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ramp.com slash explained, R-A-M-P dot com slash explained. Cards issued by Sutton Bank, I can't believe it. Joe Manchin agreed to vote for a bill? Which means Democrats might actually get something done. Rebecca Lieber, you cover climate change for Vox, and this bill might be historic, especially in terms of the climate action. Is that accurate? Yeah, I think if this actually passes,

this is the biggest amount the U.S. has ever spent to combat climate change. In this or the country? Arguably the world. Whoa. But definitely for the U.S. Huh. Leah Stokes, a political scientist at UC Santa Barbara, called this a complete game changer. So, Lee kind of gave us the broad strokes, $369 billion of investment. But can you tell us

what are the largest areas of investment here? Yeah, if this bill works as it's intended, it will basically push Americans away from relying on fossil fuels in all parts of the economy. Our biggest polluting sectors are transportation, electricity, and then after that we have industry, buildings, and some other areas. Okay. This bill helps clean up cars. It helps clean up the power sector. It has tons of funding for clean energy tax credits

as well as credits for electric vehicles. I think that's where consumers are going to see the biggest difference, those kinds of credits. Okay, let's talk about cars first. What's this bill doing on cars? This helps clean up the car industry by providing tax credits for new and used electric vehicles. The idea is bringing down the cost for electric vehicles for everyone,

so this more targets the lower and middle income brackets to help make cars more affordable. So that's why I think the tax credits for used electric vehicles is particularly interesting here, because that's what most people are buying. I think a lot of people discovered in this pandemic that it's kind of hard to buy used cars and even new cars. Does this tax credit do anything to address the shortage of availability that people have had? Yeah, that's the other half of this bill. It's targeting consumption of fossil fuels, but it's also looking at the manufacturing side. This is basically Biden's campaign promises to enhance U.S. jobs in manufacturing. So there are credits for

manufacturers to produce electric cars. There's also some stipulations in the electric vehicle tax credit section that more parts of the car have to be produced in the U.S. and those actually ratchet up over time. So ideally, over the next decade, you see more cars being put together, parts being produced in the U.S. This investment in environmental justice is real. It also provides tax credits that will create thousands of good-paying jobs, manufacturing jobs on clean energy construction projects, solar projects, wind projects, clean hydrogen projects, carbon capture projects, and more by giving tax credits for those who build these projects here in America. You also mentioned power was a big part

of the spending here. What's going to happen regarding power? So the power sector is a really important piece of this puzzle because as we have more electric cars, as we replace appliances in people's homes with electric appliances, that's going to be plugging into a grid. So we're only as clean as the grid is. We have to make sure that the power sector is not running on coal and not running on natural gas in order to ensure that it's running on clean energy and not contributing to the climate crisis. So the biggest spending of the bill is actually on clean energy tax credits for solar, wind, and even growing the U.S.'s very small offshore wind industry. All of that is to ensure that we have a cleaner grid, that we're not just plugging cars into a grid that's powered by coal. And what all of the economic modeling has shown is that without

this kind of spending, there could still be some coal on the grid in the next decade when we really need to get that down to zero by 2030. But the other thing it does that is really big is it tackles methane emissions from the oil and gas sector. So there is a methane fee and fines for oil and gas operators that are basically leaking this very powerful greenhouse gas throughout its supply chain. So this is the first industry-wide kind of fee that tries to bring down this really polluting greenhouse gas. Compared to CO2, methane pollutes up to 86 times more over a 20-year period. So it's important to tackle methane. Okay.

So it seems like it's pointing us in the right direction, especially when it comes to methane and carbon emissions in the United States. When you say there's all these tax credits, and that's the biggest proportion of spending in the entire bill, are we talking about tax credits for individual homeowners? Are we talking about tax credits for business? Who gets the money? It's a mix. It's tax credits for people to put rooftop solar on their homes, but also for the company manufacturing side. One thing this bill does is extend tax credits by 10 years. And without this, we would

have seen wind and solar credits actually on the verge of expiring this year. And what this does is provide some certainty for the future for businesses on their growth. And we do need both sides of this to ensure the growth of the clean energy sector. Okay, so cars, power, anything else here that's hugely significant? There's also the first national green bank. We have green banks throughout the country. Some states and cities have created these, but at the federal level, this is a quasi public private bank that has a social mission, which is to boost clean energy. Now they are expecting a return on their investments. This isn't just a government grant, but the idea is to boost spending in all kinds of clean energy sectors.

And one thing I think this does that is unique to what a national green bank could do as opposed to the private sector is it dedicates a portion of those funds to low-income communities. Is this like a new idea for the government? It's not new. Other countries have it. The UK, for example, has its own green bank, and that's been really instrumental in growing its offshore wind industry. So if a national green bank can do the same for the U.S., that's basically growing an offshore wind industry from zero. So it can make a big difference. As we discussed with Lee, basically anything in this bill had to get signed off on by Senator Joe Manchin.

And Lee mentioned that he had some pretty important tradeoffs here on the climate stuff. Could you tell us a little bit more about how that maybe stymies some of the progress here or if it does at all? You're right. There were some compromises made. One of the things this does is it guarantees more oil and gas leasing from the Biden administration. Which he said initially that he was basically done with new oil and gas leasing, right? Now, today's executive order also directs the Secretary of the Interior to stop issuing new oil and gas leases on public lands and offshore waters wherever possible. There's also this side deal that Manchin struck where the Senate is going to consider a separate bill that looks at speeding up permitting for all kinds of projects. And the idea that will also ease the way for fossil fuel projects. It can make it harder for people to sue if they don't want

this in their backyard. That is a completely separate kind of process from reconciliation, but this was part of the compromise the Democrats struck. So we will have to see if that also passes. Where do these compromises ultimately leave us? I mean, so there's more drilling, there's more land being leased out to drilling. At the same time bill delivers versus the costs, and they've been unequivocal that this far outweighs what those fossil fuel projects do, that the climate benefits are considerable. Overall, the several different analyses from groups like Energy Innovation and Rhodium, they're saying that this bill delivers about 40% in emissions cuts by 2030. That is a much bigger number than where we were at without it.

So as we look around the country at, you know, record-setting temperatures and flooding in Kentucky and Missouri and fires in Montana and California. Is this the legislation that meets our moment? $370 billion goes a long way. Of course, it's not enough. It doesn't get us all the way there to where we need to be on climate change. But when we're talking about the impacts, every fraction of a degree means a huge difference in millions of people's lives. Investing in all of these polluting sectors and cleaning them up,

this is where we need to be headed. And I think if this passes, this gives us a real fighting chance to combat climate change. Matthew Collette, facted by Laura Bullard, and mixed by Paul Mounsey. Today Explained it is.