Democrats push reconciliation as tool to fight inflation

Some Democrats are arguing that a revival of President Biden’s legislative agenda, parts of which aim to raise taxes on some high-income individuals and cut prescription drug costs, could help address the highest inflation in decades.

Recent data released by the Labor Department shows prices up 9.1 percent compared with a year ago, the highest rise since 1981 and significantly worse than economists’ expectations.

The figures drew swift a response from Sen. Joe Manchin (D-W.Va.), who expressed caution as he and Senate Majority Leader Charles Schumer (D-N.Y.) look to find common ground on components of the president’s economic agenda after talks unraveled last year. 

“Everyone should be extremely cautious, because you cannot do a thing right now that’s going to add or be inflammatory to inflation,” Manchin told The Hill on Wednesday.

However, a number of Democrats say they think passing a reconciliation bill that increases taxes on some high earners would help reduce inflation.

“What we’re doing is cutting costs for consumers. That has a real anti-inflationary impact, cutting medical costs, cutting energy costs, paying down debt,” Senate Finance Committee Chairman Ron Wyden (D-Ore.) argued. “That is the anti-inflationary ‘cutting costs for consumers point’ of our bill.”

“When problems are paid for, that doesn’t mean more dollars have been pumped into the economy,” said Sen. Elizabeth Warren (D-Mass.). “And when rich people have to pay taxes to help fund programs that help people go to work, that puts more workers into the economy, more productivity, and that drives prices down, not up.”

Schumer has been closely negotiating with Manchin on a pared-down bill and has signaled progress in recent weeks on proposals ranging from reforming prescription drug costs, shoring up Medicare’s solvency and raising taxes on some high-income individuals. 

Manchin seemed to express optimism about the possibility of reaching a deal on drug prices and Medicare but said of additional items, “I don’t know, but I am very, very cautious.” 

He has also said he wants any bill Democrats aim to pass by budget reconciliation, which allows the party to approve legislation in a 50-50 Senate without GOP support, to also reduce the deficit, telling reporters that “deficit reduction is going to be 50 percent.”

Republicans have been quick to push back against Democratic claims that a reconciliation package could help curb soaring inflation. 

“​​Anytime you’re spending more money, you’re creating more demand and that causes prices to go up,” Sen. Mitt Romney (R-Utah) said. “So, if they come up with a bill that spends more money, it’s going to be inflationary.”

“If they’re going to raise taxes on small business, they’re going to make it harder for small business to provide the products that people want, and therefore that causes prices to go up,” he added.

Sen. John Cornyn (R-Texas) also cited the latest inflation data to knock the Democratic-led reconciliation effort, saying, “It’s not a great time to be spending a lot more money and raising taxes.”

Cornyn also told The Hill he’d spoken to Manchin on Tuesday and said, “It sounds to me like there’s no real agreement,” noting that a deal has supposedly been in the works for more than a year. “So, I just don’t know how to assess how serious the reconciliation threat really is.”

GOP leadership is seeking to tank the tax and spending bill by threatening to pull support from a separate bipartisan China competition bill.

Schumer has set his sights on passing a reconciliation bill in the coming weeks as Democrats stare down what election forecasters expect to be a tough midterm cycle. Congress is also closing in on an end-of-September government funding deadline, and the Senate has yet to unveil any of its annual appropriations bills.

And while many Democrats are prepared to accept a much narrower reconciliation bill than what passed the House last year, there is still an appetite for tackling additional party priorities, including child care, in the same vehicle.

At the same time, Congress is coming under pressure to help the Federal Reserve fight soaring inflation rates, particularly rising costs across food and energy sectors.

Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget, said reports signaling Democrats are progressing toward a reconciliation bill that could reduce the deficit and provide prescription drug cost reform wouldn’t “solve inflation” but called it “a positive for inflation.”

“The main job for fighting inflation is the Federal Reserve, and they’re raising interest rates. But fiscal policy should be making their job easier, especially if you want to avoid a recession,” Goldwein said in an interview Wednesday. 

“There’s a lot of things we could do on a bipartisan basis to fight inflation, but I don’t think, for example, that the tax increases and the drug pricing are necessarily going to fall there, and they’re gonna take a lot longer,” he said.