Following 15 hours of debate and votes, the U.S. Senate passed legislation this weekend tackling inflation, climate change, and health care. The Senate approved the Inflation Reduction Act on a 51-50 party-line vote, with Vice President Kamala Harris breaking the tie. The bill now goes to the House for consideration this Friday.
The core of the legislation includes lowering some prescription drug prices, funneling more than $300 billion into climate change and clean energy, and imposing a 15% minimum tax on large corporations, plus a new 1% excise tax on stock buybacks. The bill also increases IRS enforcement and extends Obamacare subsidies through 2024.
For more than a year, the White House negotiated with Senate Democrats on legislation to enact the balance of President Joe Biden’s legislative agenda. What began as a $3.5 trillion wish list from the White House became a $700 billion package aimed at winning the support of all 50 Senate Democrats.
Back in December, Sen. Joe Manchin (D-WV) broke off negotiations with the White House on President Biden’s $1.7 trillion Build Back Better bill. Manchin and Sen. Chuck Schumer (D-NY) continued to talk behind the scenes and reached a deal last month on tax and climate provisions as part of the agreement. Schumer ultimately made changes to appease Sen. Kyrsten Sinema (D-AZ), eliminating a provision that would have tightened a loophole allowing certain investors to pay less in taxes.
Energy and Climate Provisions
The $369 billion in climate and energy provisions represents the largest investment in clean energy sources in U.S. history. When paired with last year’s bipartisan infrastructure package, the U.S. spending on climate change is poised to be on par with the EU’s climate budget.
The bill includes the following major energy provisions:
- Acceleration of emission cuts to put the U.S. on course to reduce greenhouse gases by 40% below 2005 levels by 2030. (That would put the country within 10% of its goal from the Paris climate agreement.)
- Funding to expand wind and solar power, make electric vehicles more affordable for Americans, and set aside $1.5 billion for oil companies – as rewards and penalties – tied to reducing their greenhouse gas emissions.
- Incentives to help develop technologies such as small nuclear reactors, carbon capture and sequestration, and hydrogen.
- $4 billion to address a potential disaster in the Southwest as drought threatens power and water supplies for tens of millions of people along the Colorado River.
- Certainty for the next decade with the bill’s new and expanded tax credits for low-carbon technologies remaining on the books.
- Requirements to tie offshore wind development to the federal government holding a lease sale beforehand of at least 60 million acres of federal waters for oil and gas production.
- Domestic content requirements for electric vehicles.
- Funding the cleanup of polluted industrial sites by reinstating the Superfund tax on crude oil and imported petroleum products.
- A fee of up to $1,500 a ton for methane emissions.
Health Care Provisions
The legislation also includes a number of changes to existing health care laws:
- Among the major prescription drug measures included in the bill is a provision allowing Medicare to negotiate drug prices. This provision will enable Medicare to negotiate lower prices for 10 high-cost drugs beginning in 2026 and ramping up to 20 drugs by 2029.
- A measure that would penalize pharmaceutical companies if the prices of their drugs rises faster than the rate of inflation.
- The 2021 COVID-19 aid package included an expansion of Affordable Care Act subsidies to assist people in paying for their health insurance. Under the previous law, the subsidies were increased and expanded so that no one, regardless of income level, would pay more than 8.5% of their income for the marketplace benchmark silver plan. The expanded subsidies were only set to last through the calendar years 2021 and 2022; the Inflation Reduction Act would extend the subsidies through 2025.
Major Tax Provisions
The tax proposals went through one more major change when the bill was on the Senate floor. Sen. John Thune (R-SD) offered an amendment to exempt businesses owned by private equity from the new corporate minimum tax. Thune’s proposal is paid for with a one-year extension of a cap on state and local tax deductions. The Senate adopted the amendment with the support of all 50 GOP members along with 6 Democrats who are all up for reelection in 2022.
However, Democrats opposed using the state and local tax deductions as a revenue stream. That prompted Democrats to adopt a subsequent amendment from Sen. Mark Warner (D-VA) that would pay for the change by extending existing limits on how certain businesses can write off their losses for another two years.
Along with those changes, the legislation includes the following:
- A 15% minimum tax on large corporations.
- A 1% excise tax on stock buybacks, which is expected to raise $73 billion, while tweaking the corporate minimum tax to appease anxious manufacturers.
- Language from the wireless industry clarifying that spectrum purchases were the same as other infrastructure assets for tax purposes. The bill has a special section called “Qualified Spectrum Purchases” that addresses the tax treatment of spectrum to resolve wireless industry anxieties.