Not as robust as President Joe Biden’s once envisioned proposal to rebuild America’s public infrastructure and family support systems, the Democrats’ compromise on health care, climate change and deficit reduction strategies is still a substantial undertaking.
The package of an estimated $740 billion — passed by the Senate on Sunday and headed for the House — is packed with party priorities. Those include limiting the cost of prescription drugs to $2,000 out of pocket for seniors, helping Americans pay for private health insurance, and what Democrats call the most substantial investment in history to fight climate change. $375 billion in the decade.
Nearly half of the money raised, $300 billion, goes toward paying back federal deficits.
It’s all largely paid for with new corporate taxes, including a 15% minimum tax for large corporations to ensure they don’t skip tax at all.
Dubbed the “Inflation Reduction Act of 2022,” it’s by no means clear that the 755-page bill will significantly alleviate inflationary pressures, though millions of Americans are expected to see some relief in health care and other costs.
The votes fell strictly along party lines in the 50-50 Senate, with all Democrats in favour, all Republicans against, and Vice President Kamala Harris secured a decisive vote for 51-50 passage. The House is expected to vote Friday.
A look at what’s in and out of the final package:
LOWER DRUG COSTS ON PRESCRIPTION
The bill launches a long-sought goal and allows the Medicare program to negotiate prescription drug prices with drug companies, saving the federal government about $288 billion over the 10-year budget window.
That new revenue would be put back into lower costs for seniors taking medications, including a $2,000 cash cap for older adults who buy prescriptions from pharmacies.
The money would also be used for free vaccinations for seniors, who are now one of the few not to have free access, according to a summary document.
Seniors would also have capped the insulin price to $35 per dose. A provision to extend that insulin price cap to Americans with private health insurance was inconsistent with Senate budget rules, and Republicans have removed it from the final bill.
PAYING HELP FOR HEALTH INSURANCE
The bill would expand subsidies provided during the COVID-19 pandemic to help some Americans who are self-funding.
With previous pandemic aid, the extra aid would expire this year. But the bill would allow aid to continue for another three years, reducing insurance premiums for people who buy their own health insurance policies.
‘A BIGGEST INVESTMENT IN CLIMATE CHANGE IN US HISTORY’
The bill would invest nearly $375 billion in climate change mitigation strategies over the decade, including investments in renewable energy production and tax credits for consumers to buy new or used electric vehicles.
It is split into $60 billion for a tax credit for clean energy production and $30 billion for a production tax credit for wind and solar energy, seen as ways to boost and support the industries that can help reduce the country’s reliance on curb fossil fuels. The bill also gives tax credits for nuclear power and carbon capture technology that oil companies like Exxon Mobil have invested millions of dollars in to move forward.
The bill would impose a new fee for 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 by Senator Kyrsten Sinema, D-Ariz., and other Democrats in Arizona, Nevada, and Colorado would allocate $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 it for drinking water.
For consumers, there are tax breaks as an incentive to go green. One of these is a 10-year consumer discount for investments in renewable energy in wind and solar. There are tax benefits for buying electric vehicles, including a $4,000 tax credit for the purchase of used electric vehicles and $7,500 for new ones.
Overall, Democrats believe the strategy could put the country on the path to cutting greenhouse gas emissions by 40% by 2030, and would be “by far the largest climate investment in U.S. history.”
HOW TO PAY FOR ALL THIS?
The biggest revenue-boosting factor in the bill is a new 15% minimum tax for companies earning more than $1 billion in annual profits.
It’s one way to deal with some 200 U.S. companies that fail to pay the standard 21% corporate tax rate, including some that end up paying no tax at all.
The new minimum corporate tax rate would come into effect after tax year 2022 and bring in some $258 billion over the decade.
Revenue is said to have been $313 billion, but Sinema pushed for one change in the corporate minimum of 15%, allowing for a depreciation deduction used by the manufacturing industry. That’s about $55 billion in total revenue.
To win Sinema over, Democrats dropped plans to close a tax loophole that wealthier Americans have long enjoyed — the so-called “carry interest,” which under current law taxes wealthy hedge fund managers and others at a price. rate of 20%.
The left has spent years trying to raise the carry rate, which had been raised to 37% in the original bill, more in line with higher income earners. Sinema wouldn’t allow it.
By retaining the tax break for the wealthy, the party is stripping $14 billion in revenue they had been counting on to help pay for the package.
Instead, with Sinema’s nod, Democrats will impose a 1% tax on share buybacks, which have brought in some $74 billion over the past decade.
Money is also being raised by encouraging the IRS to go after tax fraud. The bill proposes an $80 billion investment in tax administration, enforcement and modernization, which is expected to generate $203 billion in new revenue — a net profit of $124 billion over the decade.
The bill maintains Biden’s original promise not to impose taxes on families or businesses earning less than $400,000 a year.
The lower drug prices for seniors are being paid for with savings from Medicare’s negotiations with the drug companies.
EXTRA MONEY TO PAY REFUNDS
With about $740 billion in new revenue and about $440 billion in new investment, the bill promises to spend the about $300 billion difference on deficit reduction.
Federal deficits rose during the COVID-19 pandemic as federal spending rose and tax revenues fell as the country’s economy churned through closures, 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 released a new report this week on long-term projections.
WHAT IS BEHIND?
The 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.
Majority Leader Chuck Schumer, DN.Y., struck a deal with Senator Joe Manchin to revive and slim down Biden’s package to bring the West Virginia Democrat back to the negotiating table. Then they pulled Sinema, the remaining batch, with additional changes.
The package remains robust, by typical standards, but nowhere near the sweeping Build Back Better program Biden once envisioned.
While Congress passed a $1 trillion bipartisan infrastructure bill covering highways, broadband and other investments that Biden signed into law last year, the president’s and party’s other key priorities have slipped.
Among them is a continuation of a $300 monthly child tax credit that sent money directly to families during the pandemic and is believed to have greatly reduced child poverty.
For now, plans for free kindergarten and community college have also disappeared, as well as the country’s first paid family leave program that would have provided up to $4,000 a month for births, deaths and other critical needs.
Associated Press writer Matthew Daly contributed to this report.