The Sinema-Manchin split that shaped Dems’ deal

For months, Joe Manchin was the Democrat with all the leverage. At the end, even he had to cede some ground.

After Manchin agreed with Senate Majority Leader Chuck Schumer on the party-line tax, health care and energy bill, the West Virginia Democrat found himself bargaining with fellow moderate Sen. Kyrsten Sinema. Both hard-nosed negotiators, the Arizona Democrats’ business-friendly tax-approach clashed sharply with Manchin’s more progressive positions on taxes.

Manchin sought to target the wealthy and ended up agreeing with Schumer to target the so-called carried interest loophole that allows some people to pay lower tax rates on investment income. He also signed off on a corporate minimum tax package that most Democrats believed Sinema supported.

Ultimately, Sinema took a scalpel to the corporate minimum tax and scuttled any changes to carried interest, which Manchin called particularly “painful.” Triangulating between them through all of it: Schumer, whose job was harmonizing the views of the very public Manchin with an often-silent Sinema.

“We argue with each other on issues, but we try to respect each other,” Schumer said of Manchin on Sunday as he chomped on a celebratory meal of leftover pasta cooked by his wife. “Sinema, if she gives you her word, you got it. But she’s not a schmoozer like Manchin.”

Almost exactly one year after Manchin and Sinema teamed with Republicans to pass a historic infrastructure bill, the two moderates on Sunday cast decisive votes for Democrats' second piece of the puzzle. It was far smaller than the party's original $3.5 trillion vision, but larger than the slim health care legislation that lawmakers were considering just two weeks ago. It’s probably the last big party-line bill Democrats will be able to deliver for years, with the House expected to flip to Republicans in the November elections.

The package delivered more than $300 billion in climate and energy investments, reformed prescription drug prices and created a new minimum tax on large corporations. Sunday’s passage of the legislation marked a triumphant moment for a party that for years has talked a big game on lowering drug prices and fighting climate change.

The yearlong drama demonstrated the difficulties Schumer faces every day in running a 50-50 Senate, corralling a caucus that includes 47 other senators with their own ideas plus Sinema and Manchin, two centrist senators with divergent priorities.

Twice in full view on the Senate floor, Manchin animatedly conversed with Sinema about his deal, including pieces of the tax legislation that Sinema felt would stymie economic growth in Arizona. Manchin observed of his relationship with Sinema and the tax dispute: “We have more in common than we don't. I just have a difference on this."

“They both are pains in the neck, but pains in the neck who I respect,” said Sen. John Hickenlooper (D-Colo.) admiringly. “I don't feel they've ever misled me, or said something that was untrue.”

Manchin killed the $1.7 trillion Build Back Better bill back in December after failed negotiations with President Joe Biden. Two months later, Schumer and Manchin broke bread, and Manchin delivered his negotiating position: He wanted to wait until April before trying again. And when they did, he only wanted to talk to Schumer.

After Russia invaded Ukraine and Europe’s energy supplies were squeezed while U.S. gas prices began rising, Manchin then saw an opportunity to make big climate change investments while simultaneously boosting fossil fuel production this spring.

“That is the catapult that basically launched me,” Manchin said in an interview. “Iran is the greatest proliferator supportive of terrorism in the world, right? And we're going to give them money? Over my dead body.”

By late June, he and Schumer were looking at a package that brought in more than $1 trillion in revenue and spent significantly more than the package that passed Sunday. Sinema’s team was generally clued into that package and she told leaders in mid-July she still didn’t support the carried interest provision.

But Manchin began having second thoughts after the July 4 recess, as inflation indicators continued to flash red. Then came July 14.

“I just said, ‘Chuck, I can't do that' … That's when he got mad,” Manchin said. “Half-hour later, they put the dogs on me.”

Manchin says he never took it personally, yet there are two schools of thought in the Democratic caucus about whether that pressure campaign worked. Some argue that the attacks on Manchin from his own colleagues drove him back to the table. Others say a cohort of Democratic senators who quietly reassured Manchin amid the blowback proved far more effective.

After that blow up, Democrats coalesced around prescription drug reform and a short extension of Affordable Care Act subsidies, relegating energy, climate change and taxes to the dustbin. Manchin quietly resumed his talks with Schumer just four days later. When they announced their deal on July 27, the Democratic Caucus was triumphant.

There was one problem: Sinema was now in the dark.

In fact, Sinema was informed about the deal by No. 2 Republican John Thune on the Senate floor. She had huge influence on the Build Back Better bill, stripping out tax rate increases to assemble a tax package more palatable to her business-friendly state. And she and Sen. Chris Murphy (D-Conn.) laid the groundwork last year for what would become a key part of Democrats’ prescription drug proposal.

But Sinema never agreed to the carried interest provision. And she had other objections.

As Manchin and Sinema held their own conversations, they were helped along by Hickenlooper and Sen. Mark Warner (D-Va.). While Warner tried to come to a compromise on carried interest with Sinema, Hickenlooper suggested a stock buyback excise tax to compensate for Sinema’s requested changes on the corporate minimum tax.

“There's kind of been a trust-building relationship going on,” Warner said. “It became clear that some of the changes that Sen. Sinema wanted were creating some holes.”

On Aug. 4, Warner joined Manchin on his house boat to talk about the deal Sinema would soon announce on taxes. After getting soaked in a rainstorm, Warner left with a new outfit — wearing a pair of Manchin’s shorts and a T-shirt — and a hope that Manchin, Sinema and Schumer would see eye-to-eye. (On Saturday Manchin returned Warner’s suit, fully pressed.)

But Sinema wasn’t quite done, even after scuttling language that limited business’s ability to write off some investments. When Democrats unveiled the final legislation Saturday, it imposed the 15 percent minimum tax on some businesses owned by private equity. That had been included in previous versions of the legislation but omitted from the initial draft of the deal with Manchin.

Sinema opposed it, an alarming development.

“I thought we wouldn't pass the bill,” Schumer said. “It was hard to figure out how to make it work.”

Manchin said once he agreed with Schumer the two were “hooked to the hip” at preventing changes to the bill that could jeopardize its passage, which Schumer said was a “linchpin” of the agreement. Sinema had no such deal, and when the legislation came to the floor for amendment votes she’d privately teamed with Thune to reverse the tax change.

That required Manchin and the rest of the Democrats to make yet another compromise. Schumer went around the Senate floor telling his members that while they may not like it, they had to eat the change to pass the bill.

Schumer’s members were unhappy, according to one Senate Democrat, but exhausted and resigned to doing what it took to finish the bill. Warner stepped in with a way to fill that revenue hole, too. About 15 minutes later, the bill passed after 22 hours on the Senate floor.

For Schumer, it was the capstone of a 50-50 Senate in which he passed new laws on gun safety, infrastructure, veteran health benefits and microchip manufacturing. For Sinema, the moment demonstrated that she’s simply not in lockstep with Manchin — or the rest of her caucus.

And for Manchin, the legislation converted his reputation from the guy that stopped Biden’s agenda cold in his tracks to the coal-state senator that not only cut a deal on climate, but helped sell it any way he could.

“I've never seen a more balanced piece of legislation coming together,” Manchin said. “We never knew this day would ever come.”