This bill will allocate $430 billion to implement major changes in climate and health policies. President Joe Biden and his party consider this approval a significant victory.
The bill, known as the Inflation Reduction Act, represents the country’s largest climate investment in history and includes significant health reforms, such as allowing Medicare to negotiate prices for prescribed drugs and extending healthcare subsidies for three years. To finance the project, new taxes will be introduced, such as a 15% minimum tax on large corporations and a 1% tax on stock buybacks, aimed at reducing the deficit and increasing the IRS’s revenue capacity. The bill also forecasts an increase in government revenue by over $700 billion over 10 years, with over $430 billion earmarked for reducing carbon emissions and extending subsidies for health insurance under the Affordable Care Act, while the remaining new revenue will be used to reduce the deficit.
The House, controlled by Democrats, plans to pass the legislation by Friday, August 12, so President Biden can sign it into law. Senate Democrats, with a narrow majority of 50 seats, remained united to pass the legislation using a special process that did not require Republican votes. The final approval came after a series of controversial amendment votes, known as a “vote-a-rama,” which occurred from late Saturday night until Sunday afternoon. Senate Democrats passed the bill on a party-line vote after months of negotiations to secure full support from their caucus for this legislative package.
Senator Joe Manchin played a crucial role in drafting the legislation, which only moved forward after an agreement announced by Senate Majority Leader Chuck Schumer at the end of July, representing a significant breakthrough for Democrats after previous stalled negotiations. Arizona Senator Kyrsten Sinema offered critical support on Thursday night, August 4, after changes to tax proposals, indicating her support for the broad economic package.
Over the weekend, Sinema, Manchin, and other senators made crucial changes to the bill to avoid a last-minute collapse on Sunday. Senate Democrats adjusted the tax proposal to win over Sinema, opting to extend the limitation on business deductible losses for another two years instead of a change to state and local tax deduction, which could face opposition from some House Democrats.
During the weekend “vote-a-rama,” Republicans seized the opportunity to pressure Democrats and force politically sensitive votes. They also succeeded in removing a key provision related to insulin, which aimed to limit the price of this medication to $35 per month in private insurance plans. However, the Senate parliamentarian deemed this measure not compliant with Senate reconciliation rules. Nonetheless, the $35 limit for insulin for Medicare beneficiaries remains in place.
The bill addresses the climate crisis through a clean energy and climate package, with a historic investment of nearly $370 billion, representing the largest U.S. climate initiative and a significant victory for the environmental movement since the Clean Air Act. This investment is crucial, especially considering the heatwaves and floods the country has been facing, linked to global warming. Analyses suggest that the bill could reduce U.S. carbon emissions by up to 40% by 2030, but achieving President Biden’s goal of reducing emissions by 50% will require stricter climate regulations and state actions.
The bill also offers tax incentives to promote renewable energy and electrification, aiming to reduce electricity costs and encourage consumers’ transition to cleaner energy sources. Lawmakers emphasize that this bill is just the beginning of what is needed to address the climate crisis, recognizing the urgency of following scientific guidance to ensure a sustainable future.
The bill proposes a series of measures related to healthcare and fiscal policy. It authorizes Medicare to negotiate prices for certain expensive drugs, initially with a limited group in 2026 and gradually expanding over the years. Though more restricted than previous proposals, this measure is a step towards the Democratic goal of reducing drug costs. Additionally, federal subsidies for Obamacare coverage are planned to be extended until 2025, avoiding expiration shortly after the 2024 presidential elections. To increase revenue, the bill would impose a 15% minimum tax on income reported to stocks by large corporations, raising $258 billion over a decade. These measures reflect a comprehensive approach to addressing healthcare and fiscal issues within the bill.
Senator Sinema expressed concerns about the impact of the tax provision on businesses, especially manufacturers, and managed to secure changes to the Democratic plan regarding the tax deduction of depreciated assets, though details remain unclear. However, she vetoed her party’s attempt to narrow the carried interest loophole, which allows investment managers to pay lower capital gains tax rates. This provision would have extended the period required to benefit from the lower tax rate. Instead, a 1% tax on stock buybacks was included, generating an additional $74 billion in revenue, according to a Democratic aide.
These negotiations truly highlight the complexities and compromises involved in crafting tax legislation. It’s a delicate process that involves considering a variety of interests and concerns, from business impacts to revenue collection. The changes and concessions made during negotiations reflect the need to balance different priorities and find solutions that can be accepted by all parties involved.
