This week in Bidenomics: Democrats return from the dead

It doesn’t seem possible. After flailing for most of the past year and daring voters to send them packing, Democrats in Congress have produced important legislation to address urgent problems and maybe even improve people’s lives.

Many Americans tune out Congress, for good reason. The legislating process is arcane and no institution in the country has a higher BS ratio. Yet every now and then Congress produces something that commands attention—as it has now.

The first key bill is the CHIPS+ Act, which Congress passed on July 28 and President Joe Biden will sign imminently. This bill provides subsidies and other powerful incentives to revive semiconductor manufacturing in the United States, which once led the world in chip making but is now a bit player. Detractors on both the left and the right decry this $52 billion in subsidies as “corporate welfare,” and they’re not entirely wrong. Yet virtually all countries with meaningful chip production subsidize it, leaving the United States little choice but to do the same if it wants to maintain a stake in one of the most important industries of the future.

Coming right behind the CHIPS+ Act is the “Inflation Reduction Act,” which includes portions of the Democrats’ “build back better” legislation that failed last year. The IRA, as it’s known, shocked nearly everybody who follows Congress, because there were no public signals that a BBB reboot was in the works. But Democratic spoiler Joe Manchin, the centrist senator from West Virginia who said he couldn’t vote for the BBB bill last year, worked with other Senate Democrats to tailor a package of green-energy incentives and other items that won’t require deficit spending or impose major new taxes at a time when the economy is slowing abruptly.

The IRA includes $369 billion for wind, solar and other green energy investments, making it the biggest congressional effort to address climate change, ever. It would extend health care subsidies for some Affordable Care Act participants and allow Medicare to negotiate some drug prices with manufacturers, passing some of the savings onto seniors. New revenue would come from a 15% minimum income tax on big companies and beefed-up tax collection aimed mainly at wealthy tax avoiders. The bill would also require the executive branch to speed up approvals for natural gas pipelines and other types of fossil-fuel infrastructure.

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Completely missing from the IRA are any of the social-welfare programs Biden wanted as part of his expansive build back better program last year, such as free preschool, free community college, child-care and affordable housing subsidies and a more generous child tax credit. In fact, you can’t even really describe the IRA as Biden’s bill, though he supports it. Biden has never called for faster fossil-fuel permitting, and in fact is moving in the opposite direction, through regulations. And he has never publicly abandoned his social-welfare plans. The minimum corporate tax would raise about $31 billion in new revenue per year, but the IRA includes no increase in the corporate tax rate and no new taxes on wealthy individuals, as Biden wants.

Biden is 'poised to claim a major climate win'

Manchin has immense leverage over the Democratic agenda because of the party’s single-vote majority in the Senate. The Democrats can bypass the filibuster on a budget-related bill, but only if every Senate Democrat votes yes. Manchin objected to the BBB legislation last year because its huge $2 trillion price tag would have added to the deficit. Another Democratic holdout, Sen. Kyrsten Sinema of Arizona, has said she won’t vote for any bill with major new tax hikes.

The IRA would actually bring down the deficit by a bit, and the corporate minimum tax would only affect large companies that use extensive tax breaks to whittle down their tax bills. The green energy package would fund at least some Democratic priorities, which makes it a reasonable compromise.

Political analysts think the bill can pass, and give Biden a much-needed accomplishment to tout as the midterm elections approach.

“After a year of disappointing failures on Build Back Better, President Joe Biden’s administration is poised to claim a major climate win with the likely passage of the Inflation Reduction Act,” the Eurasia Group wrote in a July 29 analysis. Eurasia rates the odds of passage at 75%.

There will be plenty of grumbling. Liberal Democrats don’t like the concessions to fossil-fuel producers. Some Republicans supported the CHIPS+ Act on the presumed condition that Democrats wouldn’t pursue a reconciliation bill like the IRA. They feel burned, but if Democrats end up unanimously voting for the IRA, it won’t matter.

If the bill does pass, it will allow Biden to tout action on climate change, which a majority of Americans support, without having to explain away accompanying social-welfare programs that are more controversial. Liberal Democrats insist that Americans want more government help with everyday burdens, but the evidence comes up short. When the expanded child tax credit expired at the end of last year, for instance, there was no groundswell of demand to reinstate it.

The IRA might even give Biden the political wiggle room to back away from other controversial moves, such as forgiving student debt. Biden has said he favors forgiving up to $10,000 in student debt—but only if Congress does it through legislation. The votes aren’t there for that, so liberal Dems have been demanding that Biden write off student debt through executive action. Without any other accomplishments to claim in the lead-up to the midterms, Biden might feel he has to act on student debt. But with a couple of big legislative wins, maybe not.

Biden’s approval rating is still a dismal 39% or so, but as I argued two weeks ago, the bottom may be in. Gas prices have dropped by more than 70 cents per gallon in the last six weeks, and other types of inflation may be improving as well. Meaningful action in Congress won’t send a wave of euphoria washing over voters, but it may alleviate a bit of gloom. Everything isn’t broken, always.

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