On Friday afternoon the House followed the Senate and approved the Inflation Reduction Act, and it is a major win for Democrats. In the coming weeks we will see if voters care enough about the legislation to provide any help for Democrats as they fight to keep their narrow majorities in the fall.
A little history: After Senator Joe Manchin pulled his support from the Democrats’ wish list legislation contained in the $2T Build Back Better (BBB), Senate Leader Chuck Schumer approached the West Virginia Senator to see if there were parts of the bill he could support. The two talked for months and two weeks ago they agreed on a $750B package that included provisions on healthcare, energy, and taxes. The Senate then approved the scaled back bill now called the Inflation Reduction Act (IRA).
Senator Manchin had insisted that the bill raise revenue during this period of high inflation. The legislation raises revenue from taxes on corporate America. The two new taxes are a 15% minimum tax for companies with revenue over $1B and a new 1% surcharge on stock buybacks.
There are two significant healthcare provisions in the bill. The first will extend for three years the Obamacare premium subsidies that were part of the Covid relief package. The three year extension pushes the issue past the 2024 election and takes it off the table for both the 2022 and 2024 election cycles. The subsidies were set to expire at the end of this year.
The other healthcare provision is an effort to lower prescription drug prices for Medicare recipients under Part D. This bill will start a multiyear process of removing the direct negotiation prohibition between the government and pharmaceutical companies. The legislation also places a $2000 a year cap on out-of-pocket expenses for Medicare recipients under Part D.
In the climate section of the legislation there are an array of tax provisions that incentivize the move by industry and individuals to renewable energy sources. Tax credits range from electric cars to the installation of wind and solar power by manufacturing companies.
In order to secure the support of Senator Manchin, the bill also includes provisions for new oil and gas leases both on land and off-shore. Biden, Schumer and Pelosi have also promised that they will act on legislation to speed the approval process for energy projects. This not only helps oil and gas, but clean energy providers have complained about the slow and cumbersome procedures to get wind and solar up and running.
Here is a summary of the bill prepared by the DC news outlet, The Hill.
On Wednesday at 2:00 the Fed will release the minutes from the July FOMC meeting when the central bank agreed to raise the base interest rate by 75bps. On the day of the FOMC announcement, Chair Powell had his traditional press conference and tried to reflect the views of the Committee members. Wednesday we will see if there are any surprises.
Chair Powell has made clear that future moves will be data driven. Last week we saw release of the CPI which showed a slowing of inflation. The FOMC doesn’t have an August meeting and they will convene again on September 20/21. Obviously, a great deal more data will be released between now and the September meeting.
At the beginning of the month, Monmouth University put out a poll asking a generic question about Congress party control preferences. The poll surprised many when it showed an improved position for Democrats. In the poll voters who either wanted or leaned for Democrats increased to 50% up from 47% in June and 44% in May. Support for Republicans slid to 43%, down from 47% in June, and 48% in May.
At the time this poll was an outlier but then this week a Fox Network poll came out reflecting much the same. The Fox poll showed voter preference tied at 41% for both parties. In June the Fox poll had Republicans up by 3 and a 7-point advantage in May. Fox’s polling operation is respected in political circles.
While this may be positive news for Democrats, they are still fighting a big historical trend. In the past 80 years the party that controls the White House has lost seat in all but 2 midterm elections. And while this generic party preference poll may have tilted Democratic, President Biden continues to poll at near historic lows.
I should also note that, in my view, polling has become more difficult and less reliable as voters have moved from landline phones to cell phones. Cell technology allows for voters to move and maintain their phone numbers. The key to a successful poll is a good model that reflects the voter base; land lines made voter identification relatively easy, cell phones make it more difficult to link a voter with an address. In my view, the changing phone tech makes the process more challenging for pollsters. I will be writing more about this in coming weeks.