On Wednesday night, Sens. Chuck Schumer (D-NY) and Joe Manchin (D-WV) surprised Washington with a deal that would fight climate change, empower Medicare to negotiate drug prices, extend provisions of Obamacare, and institute a new electric vehicle tax credit.

The agreement would also levy a new minimum tax on the country’s biggest corporations — and make other changes to the tax code that seemed to be off the table in recent weeks. The full Senate is likely to vote on the $739 billion, 725-page proposal next week.

The bill "will very much improve tax fairness, which has been sorely missing from that part of our tax code,” Jared Bernstein, a member of Biden’s Council of Economic Advisers, told Yahoo Finance on Thursday. Moreover, he said that the minimum tax on corporations would help tackle inflation.

During remarks on Thursday, President Joe Biden said the bill will "begin to restore fairness to the tax code," noting that 55 of the Fortune 500 companies paid no federal income tax in 2020. "Now you've only heard me say that about 10,000 times," he joked, after repeating the oft-cited stat.

He then turned to address Congress and said: "Pass it, pass it for the American people."

‘Requiring big corporations to pay their fair share’

The coming reconciliation bill — dubbed the Inflation Reduction Act of 2022 — includes multiple changes to the tax system. The new minimum corporate tax would apply to corporations that have made $1 billion in book profits in recent years; it's projected to raise $313 billion.

“It is wrong that some of America’s largest companies pay nothing in taxes while freely enjoying the benefits of our nation’s military security, infrastructure and rule of law," Manchin said when announcing his support for the deal.

The deal would also put aside $80 billion to assist the IRS in finding tax dodgers, an effort that's projected to raise $203 billion over the decade.

That effort has long been a Democratic priority but was dropped from the Bipartisan Infrastructure Bill last year amid Republican objections. Republicans have been wary of boosting funding for the IRS, regarding the agency with suspicion after it scrutinized the tax-exempt status of some conservative groups.

The deal also would remove the so-called “carried interest loophole,” which money managers can use to pay lower taxes on their capital gains — potentially adding another $14 billion to U.S. coffers.

That new money would largely go towards the investment of $369 billion in clean energy and help reduce the federal deficit. The Committee for a Responsible Federal Budget estimates the bill would reduce the deficit by $305 billion over the next decade.

‘Pile on giant tax hikes’

Republicans appear to be blindsided by Wednesday night’s deal. They immediately tried to focus on the tax portion to push against the overall package. Senate Minority Leader Mitch McConnell (R-KY) said the bill will “pile on giant tax hikes that will hammer workers.”

Brooke Rollins, the president of the Trump-aligned America First Policy Institute, also criticized the deal in a statement, noting: "The commonsense solution is to immediately cut excessive government spending, increase domestic energy production, and encourage greater supply through less burdensome taxes and regulations."

Meanwhile, many liberal lawmakers celebrated the tax provisions. Sen. Elizabeth Warren (D-MA) said Wednesday night on MSNBC that the provisions would bring down costs for regular Americans. She lauded the 15% corporate minimum and the carried interest loophole provision, contending the deal would “put the country on a sounder economic footing.”

Just a few weeks ago, Democrats outlined a range of tax increases they were looking to include in a reconciliation package, only to see Manchin thwart those efforts.

While some of those provisions are back and now endorsed by Manchin, Democrats still have many questions to answer in the coming days before they can ensure the deal will actually get passed.

The first is whether they will have the support of key voter Sen. Kyrsten Sinema (D-AZ), who criticized tax increases in the past and didn't participate in secret talks in recent weeks. She has yet to weigh in on the deal and so far, her spokesman says she can't comment on the deal until she reads it.

A second question is whether all 50 Democratic Senators will be available to push it over the finish line. The complicated reconciliation process requires all 50 Democrats to be present and vote multiple times. A single absence could kill the bill's prospects. Thursday provided a reminder of the tenuous path ahead with the news that Sen. Dick Durbin (D-IL) has come down with COVID and will be isolating in the coming days.

Nonetheless, Schumer said Thursday that he expects the work with the Senate parliamentarian — which kicks off the process — will only take a few days and lead to a full Senate vote next week.

Still, another hurdle could come after that in the U.S. House of Representatives where a vocal group of Democrats have vowed to oppose any deal if it doesn't include money for the state and local tax (SALT) deduction that was capped in 2017 and largely benefits residents of high-tax blue states.

Sen. Manchin has signaled that he wasn't in the mood to negotiate on this point. "Our tax code should not favor red state or blue state elites with loopholes like SALT," he said.

Bernstein says the focus right now is to get the passed bill on Biden's desk. “Because trust me," Bernstein said, "he is anxious to sign it.”

Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.

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