Senate Democrats on Sunday passed their sweeping, $740 billion tax, climate, and health care reconciliation package after an all-night session, with Vice President Kamala Harris casting the tie-breaking vote.
The 51-50 passage of the bill, just three months before the midterm elections, is a massive victory for Democrats who have spent 18 months working toward delivering on their longstanding dreams of helping address climate change, and lowering the cost of prescription drugs, and hiking taxes on large corporations.
- The "Inflation Reduction Act of 2022" is far less ambitious than most Democrats wanted — the initial bill was roughly $3.5 trillion and also addressed paid family leave, funding for universal preschool, and expanding the child tax credit.
- But the narrower version of the bill succeeded in getting the support of the Senate's two centrist members who had previously stood in the party's way — Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-Ariz.).
- The package now moves to the House, where members will vote as early as Friday on advancing the bill to President Biden's desk.
The Senate returned to the Capitol on Saturday afternoon, and began voting late Saturday night and into Sunday on a series of amendments — part of the process known as "vote-a-rama."
- Senate Republicans offered dozens of amendments aimed at minimizing the bill, including stripping out funding for the Internal Revenue Service and eliminating COVID-19-related school mandates.
- Democrats held firm in their unity, with the help of Harris, of preserving the core elements of the package and voting down each GOP amendment.
One major setback, however, was a ruling by the Senate Parliamentarian that determined Democrats' proposal to place a $35 cap on commercial insulin violated the "Byrd Rule," which governs the provisions for what can be accepted in budget reconciliation legislation.
- Democrats tried and failed, to attach an amendment including the insulin provision to the bill, but Republicans voted it down, eliminating it from the package.
- Seven GOP senators — Bill Cassidy (R-La.), Susan Collins (R-Maine), Josh Hawley (R-Mo.), Cindy Hyde-Smith (R-Miss.), John Kennedy (R-La.), Lisa Murkowski (R-Alaska), and Dan Sullivan (R-Alaska) — voted with Democrats.
- $370 billion for climate change.
- Allows the federal health secretary to negotiate the prices of certain expensive drugs for Medicare.
- Three-year extension on health care subsidies in the Affordable Care Act.
- 15% minimum tax on corporations making $1 billion or more in income. The provision offers more than $300 billion in revenue.
- IRS tax enforcement.
- 1% excise tax on stock buybacks.
The bill is the largest investment in clean energy and emissions cuts the Senate has ever passed, with the climate portion totaling about $370 billion, Axios' Andrew Freedman writes.
- This includes tax incentives to manufacture and purchase electric vehicles, generate more wind and solar electricity, and support fledgling technology such as direct air capture and hydrogen production.
- Independent analyses show the bill, combined with other ongoing emissions reductions, would cut as much as 40% of U.S. greenhouse gas emissions by 2030, short of the White House's 50% reduction target. However, if enacted into law, it would reestablish U.S. credibility in international climate talks, which had been flagging due in part to congressional gridlock.
- As part of Democrats' concessions to Manchin, the bill also contains provisions calling for offshore oil lease sales in the Gulf of Mexico and off the coast of Alaska, and a commitment to take up a separate measure to ease the permitting of new energy projects.
“Today, after more than a year of hard work, the Senate is making history. I am confident the Inflation Reduction Act will endure as one of the defining legislative feats of the 21st century," Senate Majority Leader Chuck Schumer (D-N.Y.) said.
- "Our bill reduces inflation, lowers costs, creates millions of good-paying jobs, and is the boldest climate package in U.S. history. This bill will kick start the era of affordable clean energy in America. It’s a game changer, a turning point. And it’s been a long time in coming.”
- “Democrats have already robbed American families once through inflation, and now their solution is to rob American families a second time,” said Senate Minority Leader Mitch McConnell (R-Ky.).
- President Biden praised the passage of the bill in a statement Sunday, saying, "Today, Senate Democrats sided with American families over special interests, voting to lower the cost of prescription drugs, health insurance, and everyday energy costs and reduce the deficit, while making the wealthiest corporations finally pay their fair share. I ran for President promising to make government work for working families again, and that is what this bill does — period."
Not as robust as the proposal President Joe Biden once envisioned to rebuild America’s public infrastructure and family support systems, the Democrats’ compromise of health care, climate change, and deficit-reduction strategies is still a substantial undertaking.
The estimated $740 billion package — passed Sunday by the Senate and heading to the House — is full of party priorities. These include capping prescription drug costs at $2,000 out of pocket for seniors, helping Americans pay for private health insurance, and what Democrats are calling the most substantial investment in history to fight climate change, some $375 billion over the decade.
Almost half the money raised, $300 billion, will go toward paying down federal deficits.
It’s all paid for largely with new corporate taxes, including a 15% minimum tax on big corporations to ensure they don’t skip out on paying any taxes at all, as well as projected federal savings from lower Medicare drug costs.
Called the “Inflation Reduction Act of 2022,” it’s not at all clear the 755-page bill will substantially ease inflationary pressures, though millions of Americans are expected to see some relief in health care and other costs.
Votes fell strictly along party lines in the 50-50 Senate, with all Democrats in favor, all Republicans opposed, and Vice President Kamala Harris providing a tie-breaking vote for the 51-50 passage. The House is expected to vote by Friday.
A look at what’s in and out of the final package:
LOWER PRESCRIPTION DRUG COSTS
Launching a long-sought goal, the bill would allow the Medicare program to negotiate prescription drug prices with pharmaceutical companies, saving the federal government some $288 billion over the 10-year budget window.
Those new revenues would be put back into lower costs for seniors on medications, including a $2,000 out-of-pocket cap for older adults buying prescriptions from pharmacies.
The money would also be used to provide free vaccinations for seniors, who now are among the few not guaranteed free access, according to a summary document.
Seniors would also have insulin prices capped at $35 a dose. A provision to extend that price cap on insulin to Americans with private health insurance was out of line with Senate budget rules and Republicans stripped it from the final bill.
HELP PAY FOR HEALTH INSURANCE
The bill would extend the subsidies provided during the COVID-19 pandemic to help some Americans who buy health insurance on their own.
Under earlier pandemic relief, the extra help was set to expire this year. But the bill would allow the assistance to keep going for three more years, lowering insurance premiums for people who are purchasing their own health care policies.
‘SINGLE BIGGEST INVESTMENT IN CLIMATE CHANGE IN U.S. HISTORY
The bill would invest nearly $375 billion over the decade in climate change-fighting strategies including investments in renewable energy production and tax rebates for consumers to buy new or used electric vehicles.
It’s broken down to include $60 billion for a clean energy manufacturing tax credit and $30 billion for a production tax credit for wind and solar, seen as ways to boost and support the industries that can help curb the country’s dependence on fossil fuels. The bill also gives tax credits for nuclear power and carbon capture technology that oil companies such as Exxon Mobil have invested millions of dollars to advance.
The bill would impose a new fee on excess methane emissions from oil and gas drilling while giving fossil fuel companies access to more leases on federal lands and waters.
A late addition pushed by Sen. Kyrsten Sinema, D-Ariz., and other Democrats in Arizona, Nevada, and Colorado would designate $4 billion to combat a mega-drought in the West, including conservation efforts in the Colorado River Basin, which nearly 40 million Americans rely on for drinking water.
For consumers, there are tax breaks as incentives to go green. One is a 10-year consumer tax credit for renewable energy investments in wind and solar. There are tax breaks for buying electric vehicles, including a $4,000 tax credit for the purchase of used electric vehicles and $7,500 for new ones.
In all, Democrats believe the strategy could put the country on a path to cut greenhouse gas emissions by 40% by 2030, and “would represent the single biggest climate investment in U.S. history, by far.”
HOW TO PAY FOR ALL OF THIS?
The biggest revenue-raiser in the bill is a new 15% minimum tax on corporations that earn more than $1 billion in annual profits.
It’s a way to clamp down on some 200 U.S. companies that avoid paying the standard 21% corporate tax rate, including some that end up paying no taxes at all.
The new corporate minimum tax would kick in after the 2022 tax year and raise more than $258 billion over the decade.
The revenue would have been higher, but Sinema insisted on one change to the 15% corporate minimum, allowing a depreciation deduction used by manufacturing industries. That shaves about $55 billion off the total revenue.
To win over Sinema, Democrats dropped plans to close a tax loophole long enjoyed by wealthier Americans — so-called carried interest, which under current law taxes wealthy hedge fund managers and others at a 20% rate.
The left has for years sought to boost the carried interest tax rate, hiked to 37% in the original bill, more in line with upper-income earners. Sinema wouldn’t allow it.
Keeping the tax break for the wealthy deprives the party of $14 billion in revenue they were counting on to help pay for the package.
In its place, Democrats, with Sinema’s nod, will impose a 1% excise tax on stock buybacks, raising some $74 billion over the decade.
Money is also raised by boosting the IRS to go after tax cheats. The bill proposes an $80 billion investment in taxpayer services, enforcement, and modernization, which is projected to raise $203 billion in new revenue — a net gain of $124 billion over the decade.
The bill sticks with Biden’s original pledge not to raise taxes on families or businesses making less than $400,000 a year.
The lower drug prices for seniors are paid for with savings from Medicare’s negotiations with the drug companies.
EXTRA MONEY TO PAY DOWN DEFICITS
With some $740 billion in the new revenue and around $440 billion in new investments, the bill promises to put the difference of about $300 billion toward deficit reduction.
Federal deficits spiked during the COVID-19 pandemic when federal spending soared and tax revenues fell as the nation’s economy churned through shutdowns, closed offices, and other massive changes.
The nation has seen deficits rise and fall in recent years. But overall federal budgeting is on an unsustainable path, according to the Congressional Budget Office, which put out a new report this week on long-term projections.
WHAT’S LEFT BEHIND?
This latest package emerged suddenly at the end of July after 18 months of start-stop negotiations leaving behind many of Biden’s more ambitious goals.
Senate Majority Leader Chuck Schumer, D-N.Y., struck a deal with Sen. Joe Manchin to revive Biden’s package, slimming it down to bring the West Virginia Democrat back to the negotiating table. Next, they drew Sinema, the remaining party holdout, with additional changes.
The package remains robust, by typical standards, but nowhere near the sweeping Build Back Better program Biden once envisioned.
While Congress did pass a $1 trillion bipartisan infrastructure bill for highways, broadband, and other investments that Biden signed into law last year, the president’s and the party’s other key priorities have slipped away.
Among them is a continuation of a $300 monthly child tax credit that was sending money directly to families during the pandemic and is believed to have widely reduced child poverty.
Also gone, for now, are plans for free pre-kindergarten and community college, as well as the nation’s first paid family leave program that would have provided up to $4,000 a month for births, deaths, and other pivotal needs.
President Joe Biden and Senate Majority Leader Chuck Schumer are the biggest winners now that a huge piece of Democrats’ economic agenda is hurtling toward enactment.
The tax and energy bill passed Sunday after a year and a half of rocky negotiations that divided the party. It gives Democrats tangible progress on key issues to show voters in the midterm elections this November.
Biden’s popularity nose-dived a year ago in the wake of the haphazard Afghanistan pullout and rising inflation -- and a year of infighting among Democrats over the domestic agenda. That squabbling is in the past and Biden can say a cornerstone of his agenda will become law.
Schumer was slammed last year for failing to unite his caucus behind Biden’s Build Back Better plan. He managed to revive a slimmed version of the deal, navigate last-minute holdups, and blindside Republicans hours after they gave up leverage by allowing a bipartisan semiconductor bill to pass.
Here’s who else comes out on top and who takes a hit from the landmark bill:
WINNERS:
The Wealthy
None of the billions of dollars in tax increases Democrats floated a year ago on high-earning Americans made it into the final version of the bill, including proposals to double the capital gains rate, increase taxes on inheritances and levy a surcharge on millionaires. Despite rhetoric from Democrats that they wanted the richest Americans to pay much more, there wasn’t consensus within the party to pass a bill that raises levies on the 1%.
Private Equity
Private equity fund managers were able to dodge a tax increase that Senator Joe Manchin wanted, but fellow moderate Democrat Senator Kyrsten Sinema insisted be taken out of the bill. Manchin had wanted to narrow a tax break known as carried interest, that allows fund managers to pay lower capital gains rates on their earnings. The private equity industry was able to gain an additional win shortly before the final passage of the bill when a handful of Democrats broke with their party to vote on a Republican amendment that created a carveout for private equity-owned companies in the corporate minimum tax.
Manchin, Sinema
The entire contents of the bill were essentially cherry-picked by Manchin and then tweaked to fit Sinema’s preferences. The two moderates amassed huge leverage with their willingness to accept no bill at all -- and attacks from progressives -- rather than a bill with provisions they opposed. The pair were also able to score some direct benefits for their states as part of the negotiations: Manchin secured an agreement to permit the completion of the Equitrans Midstream Corp.’s Mountain Valley Pipeline, and Sinema was able to get $4 billion for drought relief in western states.
Electric Carmakers
The deal extends a popular $7,500 per vehicle consumer tax credit for the purchase of electric vehicles, a win for EV makers like General Motors Co., Tesla Inc. and Toyota Motor Co. But to win the backing of Manchin, companies will have to comply with tough new battery and critical minerals sourcing requirements that could render the credits useless for years for many manufacturers. Not all manufacturers stand to benefit from the credit. New cars that cost more than $55,000 and $80,000 for pickups and SUVs won’t qualify for the credits.
Renewable Energy
Solar company Sunrun Inc., energy storage and software provider Stem Inc., and hydrogen and fuel cell company Plug Power Inc. stand to benefit from generous tax credits in the bill. Nuclear reactor operators such as Southern Co., Constellation Energy Corp., Public Service Enterprise Group Inc., and Energy Harbor Corp. also could see a boon from a $30 billion production tax credit for nuclear power providers.
Oil Companies
Oil and gas got a boost alongside newer energy sources. The bill, which could mandate more federal oil and gas lease sales and boosts an existing tax credit for carbon capture, won praise from companies such as Exxon Mobil Corp. and Occidental Petroleum Corp. The legislation creates a new 10-year product tax credit for hydrogen production that rises to as much as $3 per kilogram depending on carbon intensity.
Medicare, Obamacare Enrollees
The final bill caps out-of-pocket costs for seniors’ prescription drugs at $2,000 a year and allows Medicare to negotiate the prices on 10 medications four years from now. The bill avoids a large January increase in Obamacare premiums for many middle-income people by extending subsidies for three years.
Deficit Hawks
Manchin negotiated $300 billion in deficit reduction into the bill, the first major effort by Congress in 11 years to reduce the difference between how much the country spends versus how much tax revenue it takes in. The deficit cuts are minor compared to the $24 trillion national debt but hawks say it’s a start.
The IRS
The Internal Revenue Service will get an influx of $80 billion over the next decade to expand its audit capability and upgrade technology systems after years of being underfunded.
LOSERS:
Republicans
The GOP was confident they had beaten back Biden’s tax and climate agenda and were stunned in late July when Schumer and Manchin announced a deal. While still the favorite to gain seats in the midterm elections, the passage of the bill is a major setback for the GOP’s policy aims. It does, however, give them a new issue to campaign on in the fall campaigns.
Pharmaceutical Companies
The bill allows Medicare for the first time to negotiate with pharmaceutical companies on drug prices, a change that Congress has been discussing for decades with limited success, in part because of the drug lobby’s power. The pharmaceutical industry was able to score a partial victory after the Senate parliamentarian blocked a portion of the bill that would have capped price increases for drugs in the commercial market. Drug-makers will likely offset some of their reduced revenue from Medicare negotiations with higher prices for patients with private insurance.
Tech Companies
Technology companies are set to bear the brunt of the two major tax increases in the proposal -- a 15% minimum tax on financial statement profits and a new levy on stock buybacks. Corporations like Alphabet Inc.’s Google and Meta Inc.’s Facebook have both been able to deftly use the tax code to cut down on the taxes they owe, while still being profitable. The minimum tax is designed to increase levies on companies that report large profits to shareholders but can claim many deductions and credits to cut their IRS bills.
The SALT Caucus
The legislation does not include an expansion of the $10,000 cap on the state and local tax deduction, or SALT. The omission is a blow to residents of high-tax states on the Northeast and West Coast, and Representatives Josh Gottheimer of New Jersey and Tom Suozzi of New York, who led the effort to increase the size of the write-off.
Bernie Sanders
The $437 billion in spending is a far cry from the $6 trillion that progressives, led by Senator Bernie Sanders, envisioned at the start of Biden’s presidency. The bill excludes all proposals for new social programs, including child care, tuition-free college, housing spending, and an expanded-child monthly child tax credit.