Inflation report deals blow to Schumer-Manchin budget talks

A new report showing that prices have jumped 9.1 percent compared to a year ago is a new setback to Senate Majority Leader Charles Schumer’s (D-N.Y.) effort to negotiate a budget reconciliation deal with West Virginia Sen. Joe Manchin (D-N.Y.).  

The higher-than-expected inflation report will make it tougher to achieve Schumer’s goal of passing a reconciliation bill before the August recess as Manchin on Wednesday called on his colleagues to slow down and look more carefully at how the legislation might further fuel price increases.  

Manchin now says the provisions of the bill will need to be “scrubbed much better,” including a proposed 3.8 percent tax on wealthy individuals and families who earn money from pass-through businesses, a provision made public last week.  

In the wake of the latest inflation number, Manchin says he’s not sure if he can support a bill that includes anything beyond a proposal to give Medicare power to negotiate lower prescription drug prices.  

“We know what we can pass is basically the drug pricing, OK? — on Medicare,” he told reporters Wednesday. “Is there any more we can do? I don’t know but I am very, very cautious. 

“And I’m going to make sure that I have every input on scrubbing everything humanly possible that could be considered inflammatory,” he said.  

“Basically, take your time and make sure we do it and do it right. We can’t afford mistakes in the highest inflation we’ve seen in the last 40 years.”

Manchin has pushed back against Schumer’s effort to try to get a deal wrapped up by the start of the August recess, which is scheduled to begin Aug. 6. Instead, he has argued that negotiators have until the end of September to work out a deal.  

But pushing the talks into September will be cutting it close to the drop-dead deadline as the budget reconciliation instructions that would protect the package from a GOP filibuster expire on Sept. 30.  

Manchin also said he hasn’t signed off on the proposed 3.8 percent tax on pass-through business income earned by wealthy individuals and couples, which floated publicly last week with the implication it had Manchin’s support.  

“If anything, it needs to be scrubbed much better,” he said, adding that complaints the 3.8 percent pass-through income tax will hit small businesses and possibly add to inflation is “extremely concerning.”  

Manchin is hearing from GOP colleagues who warn that increasing taxes on pass-through businesses such as restaurants, construction companies, doctors’ and dentists’ offices and family-owned stores will wind up increasing costs for consumers.  

“They can’t absorb those additional causes. They would have to increase their prices and that would exacerbate inflation,” said Sen. John Cornyn (R-Texas), who worked recently with Manchin on gun-safety legislation.  

Most small businesses are classified as pass-through businesses.  

Americans for Tax Reform, a conservative group that favors smaller government and lower taxes, estimates that the tax increase on pass-through business would affect 1,870 tax filers in West Virginia.  

It would only apply to individuals earning more than $400,000 and couples earning more than $500,000.  

Manchin on Wednesday emphasized that he doesn’t want to do anything that will increase costs for people at home.  

“Right now we should all be extremely cautious. People are hurting, people are hurting,” he said.  

“Everyone should be extremely cautious because you cannot do a thing right now that’s going to add or be inflammatory to inflation,” he said.  

Manchin says he’ll close tax loopholes but he doesn’t want to raise taxes.  

“I’m looking at anything that can basically make the system fair. I’m not looking at penalizing anybody, I don’t think we should be raising taxes. But the bottom line is there are loopholes that can be closed. There are things that can be done in a real practical, frugal way,” he said.  

The talks between Schumer and Manchin made progress over the July 4 recess but the worse-than-expected report from the Bureau of Labor Statistics comes at a sensitive time in the talks.  

The 9.1 percent increase in prices on an annual basis is the fastest rise in inflation since 1981 and surpasses Dow Jones’s estimate of an 8.8 percent increase.  

Manchin on Wednesday also shot down a demand by two Northeastern House Democrats dto lift the cap on state and local tax deductions, a reform made by former President Trump’s 2017 tax cut.  

“SALT’s not been in the talks at all,” he said.  

Reps. Josh Gottheimer (D-N.J.) and Tom Suozzi (D-N.Y.) are threatening to vote against a budget reconciliation bill that doesn’t include a SALT fix, putting pressure on Speaker Nancy Pelosi (D-Calif.), who is operating with a slim four-seat margin.  

Democratic senators are growing increasingly skeptical about getting a deal with Manchin on a budget reconciliation package any broader than the prescription drug pricing reforms they largely hammered out last year.  

“Well, I’m glad to see he included prescription drugs,” said Senate Democratic Whip Dick Durbin (Ill.). “I’ve always been skeptical of reconciliation so we’ll see.”  

Sen. Elizabeth Warren (D-Mass.) said Democrats will have to settle for whatever they can get Manchin to support.  

“There’s so much we need to do but we do as we can get 50 votes for, and I will celebrate what we can get done and work harder than ever for the parts that are still pretty important,” she said.  

Warren balked at the claim that the budget reconciliation package would add to inflation, arguing that’s not the case if it’s fully paid for — something Democrats have promised.  

“It’s important to understand which changes aggravate inflation and which ones ease inflation,” she said. “When spending is to get more workers into the workforce, for example, like universal childcare and it’s fully paid for by taxes on the rich, the consequences of that are not inflationary, they’re deflationary. 

She said if the climate provisions of the bill are fully paid for, “then there’s no inflationary impact.”