Historic Inflation Reduction Act of 2022 Passes Senate, Awaits House Approval

Pillsbury Winthrop Shaw Pittman LLP

Once signed into law, the Inflation Reduction Act of 2022 will make historic investments in clean energy and significant reforms to tax policies.

TAKEAWAYS

  • The Senate passed the Inflation Reduction Act on August 7, 2022, after making several tax-related amendments to secure the 50 Democratic votes needed for the bill to pass.
  • The legislation includes historic investments in climate change and clean energy initiatives and makes tax changes to generate revenue.
  • The House is expected to pass the bill in the coming days, likely with no changes.

On August 7, 2022, the Senate passed the Inflation Reduction Act of 2022 by a vote of 51 to 50, with Vice President Kamala Harris casting the tie-breaking vote. The bill now heads to the House and is expected to pass that chamber in the coming days.

The legislation provides the largest investment in climate and clean energy initiatives in history and billions in new federal spending for health care priorities. It further makes targeted tax changes and funds tax enforcement to generate revenue and reduce the federal deficit. Pillsbury’s Energy, Public Policy, and Tax teams released an analysis of the major provisions of the bill and its energy specific tax policies when it was initially unveiled late last month.

Through the Senate vote process, several provisions of the original bill were modified or eliminated. Specifically, the Senate-passed legislation:

  • No longer eliminates the existing carried interest tax break on income derived from certain investments, so long as those investments are held by the investor for at least three years;
  • Includes a private equity carve out from the minimum corporate tax rate of 15% for companies making more than $1 billion per year. This provision clarifies that profits from corporations that are part of the subsidiary portfolio of a private equity firm are to be counted separately for the purpose of determining if a company makes more than $1 billion dollars per year and, therefore, would be subject to the 15% corporate tax rate. This will effectively prevent smaller corporations, which by themselves make under $1 billion per year, held by private equity firms from being impacted by the minimum corporate tax provisions;
  • Limits pass-through corporate entities from claiming more than $250,000 in tax deductions each year; and
  • Sets a $35 dollar per month cap on the price of insulin for Medicare recipients. A broader proposal to set a cap of $35 per month for private insurers was stripped out of the bill.

The landmark investments in climate change and clean energy were not modified during Senate negotiations. Pillsbury’s Energy team has compiled analyses of these provisions, which can be accessed here and here.

The House will come back into session on Friday, August 12, 2022, and House leaders anticipate quickly passing the bill—without amendment—with votes from the chamber’s Democratic majority.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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