Update to Senate Majority Leader Chuck Schumer Tees Up A Prescription Drug Pricing Plan That Has ‘President’ Manchin’s Blessing.

I know, I know … this could be another prima donna Democratic diva Joe Manchin desperate for attention moment again, he’s making promises he has no intention of ever keeping for media attention, and to run out the clock on the Democratic Party agenda, i.e., August 5. I am the biggest skeptic of this kind of reporting. How many times can people fall for the old Lucy and Charlie Brown with the football shtick?

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The Senate returns to work this week, and will be in session from July 11 to August 5. Then the Senate goes on August recess from August 6 to September 5.

Nevertheless, the Washington Post is reporting, Democrats see hope for spending deal with Manchin as Congress returns:

Senate Democrats are redoubling their efforts to finalize a new spending package that could lower health-care costs and combat climate change, hoping to hammer out a long-elusive deal with Sen. Joe Manchin III (D-W.Va.) and bring it to the chamber floor later this month.

A new sense of optimism — and urgency — has set in among party lawmakers nearly seven months after their last attempt to pass a sweeping bill ended in stunning defeat. Piece by piece, Democratic leaders in recent days have started reconstructing their economic ambitions as they race to deliver on a staple element of President Biden’s agenda before the midterm elections in November.

So far, top Democrats have worked out with Manchin new agreements that would cut drug costs for seniors, improve the financial health of Medicare and close a tax loophole that benefits the wealthy. They even have advanced talks around addressing the challenges posed by a faster-warming planet, raising the prospect that they can secure a limited initiative to penalize methane emissions.

Those early agreements have set the stage for Senate Democrats to make an upbeat return to the Capitol on Monday. Manchin is expected to have his next private meeting with Senate Majority Leader Charles E. Schumer (D-N.Y.) early in the week, according to two people familiar with the matter, who spoke on the condition of anonymity to describe the deliberations. They are set to discuss climate as Democrats try to bring one of their thorniest fights with the moderate West Virginian to an end.

Plenty remains unresolved, including the fate of a key program that lowers insurance costs for millions of Americans, raising the prospect that the latest round of talks could collapse much as they did before. [There it is!] Adding to the challenge, Republicans have intensified their opposition in recent days, hoping to apply enough political pressure on Manchin that he walks away from the talks again.

“To my friend Joe Manchin from West Virginia, whose vote is going to be necessary for this, I would remind him Joe Biden’s popularity in that state is as low as it is in Wyoming, only 17 percent,” Sen. John Barrasso (R-Wyo.), leader of the Senate Republican Conference, said during an interview on “Fox News Sunday.” He added that Manchin “shouldn’t walk the plank for Joe Biden” politically.

Even if Manchin and members of his party manage to strike a deal, it is guaranteed to be far smaller than Democrats’ original, roughly $2 trillion package, known as the Build Back Better Act, which the senator scuttled last year. The cuts might have been unthinkable earlier in the debate, but many Democrats have come to acknowledge them as the costs of compromise — and feel more hopeful than ever that there is now a pathway to achieve it.

“We’re making real progress, we’re picking up steam, and the central reason is we’re focused on cutting costs and addressing these real pocket book issues on the minds of Americans,” said Sen. Ron Wyden (D-Ore.), chairman of the tax-focused Finance Committee.

“I’m not saying it’s all done, it’s all over and the like,” Wyden later added, “but I do feel more confident about the progress that has been made.”

The debate seemed intractable only months earlier, when Manchin announced on a Sunday news talk show that he could not vote for theoriginal $2 trillion bill to overhaul the country’s health-care, education, immigration, climate and tax laws. Even the White House attacked the senator in response, arguing in unusually stark terms in December that Manchin had made a “breach of his commitments” to Biden.

By spring, however, Democrats had begun the long slog to rethink their agenda — realizing the stakes of failure after they swept into power in Washington on promises to improve Americans’ economic fortunes. A frenzied bout of private meetings began, as Schumer stepped in to negotiate on behalf of Democrats on a smaller deal with Manchin.

The senator’s cost concerns soon left Democrats no choice but to whittle down their aspirations, forcing them to shelve plans for free prekindergarten, paid family and medical leave and tax benefits for low-income families. In a sign of the sensitivity, Schumer convened most of those conversations in secret, out of view even from top party lawmakers. And party leaders took special care to distance their legislative work even from the name Build Back Better, which had been Biden’s 2020 campaign slogan.

“Senator Manchin has repeatedly expressed his concerns about rising inflation, a pending recession and the state of American energy security,” Sam Runyan, a spokesman for the lawmaker, said in a statement. “He continues to work in good faith [I disagree] to see if there is a pathway forward to shore up domestic energy production and reduce emissions, lower health care costs for seniors and working families, and ensure everyone is paying their fair share of taxes.”

The early fruits of their labors became apparent in late June, when Schumer and Manchin worked out a revised proposal to lower seniors’ drug prices. The policy aims to empower Medicare to negotiate some drugs’ costs and penalize pharmaceutical giants that raise their rates faster than inflation. In doing so, it saves the government money, reducing the deficit by roughly $287 billion over 10 years, the Congressional Budget Office reported Friday.

“People sometimes can’t afford the medicines they need to stay alive,” Sen. Richard J. Durbin (D-Ill.), the majority whip, said on “Fox News Sunday.” He added: “All of us are working toward bringing down these prices.”

Manchin has long said that he supports drug pricing reforms, but Democratic aides still took the development as a positive sign, since party leaders were finally readying legislative text for a floor debate. The development allowed Democrats to present their proposal to the Senate’s parliamentarian last week, a critical step in the legislative process known as budget reconciliation.

The tactic allows lawmakers to adopt bills in the Senate with only 51 votes. That enables Democrats to overcome a guaranteed Republican filibuster, since they hold 50 seats and can count on Vice President Harris to break a tie. But reconciliation also subjects legislation to specific spending rules, and it won’t work unless Democrats remain present and united — a challenge brought into sharp relief by Sen. Patrick J. Leahy’s (D-Vt.) recent recovery from hip surgery. The timing of his return is unclear.

Missing from the drug pricing proposal was a key plan that aimed to cap the price of insulin at $35, which Democrats sought to do as part of the Build Back Better plan last year. But lawmakers said they are hoping still to address the matter on a bipartisan basis, after Sens. Jeanne Shaheen (D-N.H.) and Susan Collins (R-Maine) released a broader insulin bill earlier this summer. The duo faces an uphill battle to secure at least 10 Republican votes for it to pass, though Schumer has committed to putting the measure on the Senate floor in the weeks ahead.

“I think it’s in everybody’s interest, both individual senators and the country’s, to try to get things done that are going to be important to the people of America,” Shaheen said in an interview, adding the “high cost of insulin” is “not a Democratic or Republican issue.”

Along with the prescription drug plan, Schumer and Manchin last week also worked out another agreement that aims to close a tax loophole for high-income Americans who own pass-through businesses. The policy essentially would allow the government to raise more money for the Medicare trust fund, extending its solvency for an extra three years — and addressing one of Manchin’s top concerns.

And Democrats appeared to make progress around climate policy, one of the fiercest areas of division between them and Manchin, who represents coal-heavy West Virginia. Lawmakers for months have haggled over ideas including new fees on producers of methane gas, a major contributor to global warming. In recent days, though, Democrats have discussed scaling back the penalties to a smaller number of energy producers, as Manchin has sought.

The two sides remain divided over Democrats’ plans to pay the producers of clean energy, a policy known as direct pay, and give tax credits to people who buy electric vehicles. To assuage Manchin, party leaders recently have sought to scale back earlier initiatives on direct pay to cover only nonprofits and state-owned facilities. And they have weighed whether to restrict any tax credits for EVs so that they don’t benefit high earners. In the end, the talks could yield a climate package around $300 billion to $350 billion, two people familiar with the matter, who spoke on the condition of anonymity, said. The sources added they hope to complete negotiations around climate policy this week.

That would be a marked departure from the roughly $550 billion in new spending Democrats initially preferred. But even some of the fiercest advocates for funding to fight climate change said in recent days they had tried to reset their expectations.

“You could look at this entire package, [and] you can compare it to what we were working on last year,” said Sen. Tina Smith (D-Minn.), who initially had proposed a widely backed package to incentivize green energy and penalize polluters. “You can compare it to that, or you can compare it to zero.”

Smith acknowledged she had not seen details of any deal with Manchin, but she added: “I’m quite confident this is going to be better than zero.”

Even more serious tensions surround the fate of tax credits that currently reduce health insurance premiums for roughly 13 million Americans. Manchin privately has rejected Democrats’ initial plans to extend them, one of the people familiar with the matter said, though the two sides have discussed paring back eligibility on the basis of income as a way to lower costs.

Without action, all 13 million beneficiaries will see increases in monthly costs next year. The prospect prompted 13 Democrats in recent weeks to urge Schumer and House Speaker Nancy Pelosi (D-Calif.) to “prioritize making permanent” the tax credits, which cover insurance purchased through exchanges under the Affordable Care Act.

As I said in the earlier post, all of this focus on Joe Manchin ignores the other prima donna Democratic diva in the room, Sen. Kyrsten Sinema. She is also desperate for attention, and her Wall Street, Big Oil and Big Pharma campaign contributors may get her to derail any deal Democrats reach with Joe Manchin. Sinema is never to be trusted, any more so than Manchin.

Sensing a potentially changing tide, Republicans in recent days have tried to spoil Democrats’ new dealmaking. [Because sabotaging progress and undermining Americans’ desires is what Republicans do.] A day after the prescription drug plan became public when it was reported by The Washington Post, Senate Minority Leader Mitch McConnell (R-Ky.) issued a new threat: He said he would block a bipartisan science and technology bill unless Democrats stood down on reconciliation.

Publicly, Democrats in Congress and top aides to Biden quickly blasted McConnell for doing the bidding of the pharmaceutical industry. Privately, they wondered if he had the support of his members to spoil the bill, which includes roughly $50 million in new investments for high-demand computer chips. The measure, known as USICA, cleared the Senate last year with 68 votes — including McConnell’s. Talks have been long underway on reconciling the measure with the version that later passed the House.

But McConnell in recent days has kept up the attack. Appearing at an event in Kentucky last week, McConnell blamed Democrats for “rampant inflation,” adding of their broader spending ambitions: “If they bring that back, it will only make all of this considerably worse.”

Mitch McConnell passed the first two of three pandemic relief bills. All three bills pumped money into the economy to keep it afloat as the the economy was purposefully shut down to fight the spread of Covid-19. Republicans sabotaged those Covid efforts as well. If government assistance is the cause of inflation as Republicans assert, then practically every member of Congress, Republican and Democrat alike, voted for it. They are all in the same boat. McConnell cannot have it both ways.

Nobel Prize winning economist Paul Krugman explains, That Was the Stagflation That Was:

On Wednesday the five-year breakeven inflation rate fell to 2.48 percent. If that doesn’t mean anything to you — which is completely forgivable if you aren’t a professional economy-watcher — try this: The wholesale price of gasoline has fallen about 80 cents a gallon since its peak a month ago. Only a little of this plunge has been passed on to consumers so far, but over the weeks ahead we’re likely to see a broad decline in prices at the pump.

Incidentally, what are the odds that falling gas prices will get even a small fraction of the media coverage devoted to rising prices?

What these numbers and a growing accumulation of other data, from rents to shipping costs, suggest is that the risk of stagflation is receding. That’s good news. But I’m worried that policymakers, especially at the Federal Reserve, may be slow to adapt to the new information. They were clearly too complacent in the face of rising inflation (as was I!); but now they may be clinging too long to a hard-money stance and creating a gratuitous recession.

Let’s talk about what the Fed is afraid of.

Obviously we’ve had serious inflation problems over the past year and a half. Much, probably most, of this inflation reflected presumably temporary disruptions of supply ranging from supply-chain problems to Russia’s invasion of Ukraine. But part of the inflation surge also surely reflected an overheated domestic economy. Even those of us who are usually monetary doves agreed that the Fed needed to hike interest rates to cool the economy down — which it has. The Fed’s rate hikes, plus the anticipation of more hikes to come, have caused the interest rates that matter for the real economy — notably mortgage rates — to soar, which will reduce overall spending.

Indeed, there are early indications of a significant economic slowdown.

But the just-released minutes of last month’s meeting of the Fed’s Open Market Committee, which sets interest rates, suggest considerable fear that just cooling the economy off won’t be enough, that expectations of future inflation are becoming “unanchored” and that inflation “could become entrenched.”

This isn’t a foolish concern in principle. Over the course of the 1970s just about everyone came to expect persistent high inflation, and this expectation got built into wage- and price-setting — for example, employers were willing to lock in 10-percent-a-year wage increases because they expected all their competitors to be doing the same. Purging the economy of those entrenched expectations required an extended period of very high unemployment — stagflation.

But why did the Fed believe that something like this might be happening now? Both the minutes and remarks from the chair, Jerome Powell, suggest that an important factor was a preliminary release of survey results from the University of Michigan, which seemed to show a jump in long-term inflation expectations.

Even at the time, some of us warned against putting too much weight on one number, especially given the fact that other numbers weren’t telling the same story. Sure enough, the Michigan number was a blip: Most of that jump in inflation expectations went away when revised data was released a week later.

And for what it’s worth, financial markets are now more or less sounding the all-clear on persistent inflation. That five-year breakeven is the spread between ordinary interest rates and the interest rates on bonds that are protected against rising prices; it is therefore an implicit forecast of future inflation. And a closer look at the markets shows not just that they expect relatively low inflation over the medium term but also that they expect it to subside after the next year or so, returning thereafter to a level consistent with the Fed’s long-run target.

To be fair, bond traders don’t set wages and prices, and it’s possible in principle that inflation is getting entrenched in the minds of workers and businesses even as investors decide that it’s under control. But it’s not likely.

Also, there may be an element of self-denying prophecy here, with investors marking down their expectations of future inflation precisely because they expect the Fed to slam too hard on the brakes.

Still, it’s disturbing to read reports suggesting that the Fed is getting more hawkish even as the economy weakens and the prospects for sustained inflation are receding.

I don’t know exactly what’s going on here. Part of it may be the all too common tendency of policymakers to double down on a course of action even when the facts stop supporting it. Part of it may be that, having gotten past inflation wrong, Fed officials are, perhaps unconsciously, susceptible to bullying from Wall Street types determined to be hysterical about future inflation. And in part they may just be overcompensating for their previous underestimation of inflation risks.

In any case, there’s an old joke about the motorist who runs over a pedestrian, then tries to fix the mistake by backing up — and in so doing runs over the pedestrian a second time. I fear that something like that may be about to happen in economic policy.




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