The Inflation Reduction Act, a scaled-down version of the Building Back Better Act, passed the Senate over the weekend and is now heading to the House where it is expected to pass before going to President Biden for his signature by the end of this week.
The legislation, according to Senate Democrats, will make a “historic down payment on deficit reduction to fight inflation, invest in domestic energy production and manufacturing, and reduce carbon emissions by approximately 40% of here 2030”. It is also designed to reduce health care costs for older Americans. Republicans are less generous, describing the legislation as a giant tax hike and a major spending bill. Here are the main provisions of the bill, as passed by the Senate.
Key points to remember
- The Inflation Reduction Act (IRA) of 2022 was passed by the Senate on August 7, 2022.
- The legislation is designed to tackle climate change, reduce healthcare costs for the elderly, reduce the deficit and fight inflation.
- Senate Democrats have used the budget reconciliation process, which only requires a majority to pass legislation.
- The bill calls for a $433 billion investment to secure $739 billion in revenue for a net deficit reduction of more than $300 billion, according to Senate Democrats.
- The legislation will then be taken up by the House, where it is expected to pass before being sent to President Biden for his signature to become law.
Coping with climate change
The legislation calls for an investment of more than $300 billion in energy and climate reform. This would be the largest federal investment in clean energy in US history. By comparison, the Build Back Better Act called for an investment of $555 billion in climate change.
The bill’s measures would invest $60 billion in renewable energy infrastructure, including additional wind turbines and the manufacture of solar panels. Individuals would benefit from tax credits on the purchase of electric vehicles and on measures taken to make homes more energy efficient.
Democrats say these actions would reduce greenhouse gas emissions by 40% by 2029. The Biden administration has set a target of a 50% reduction by then.
Lower prescription drug prices
Current legislation will reduce the prices of certain prescription drugs by allowing Medicare to negotiate prices for certain expensive prescription drugs. Negotiations will be limited to 10 drugs in 2026 and 20 in 2029.
The insulin price cap of $35 a month was overturned by the Senate congressman because it would only apply to Medicare beneficiaries and not private insurance. Democrats responded by including private insurance. Republicans effectively killed the measure by blocking private insurance.
The bill includes a $2,000 cap on prescription drug costs for Medicare beneficiaries, effective in 2025 and a three-year extension of health care subsidies in the Affordable Care Act (ACA) which was originally part of the pandemic relief in 2021.
Tax increase for certain corporations
The IRA legislation creates an alternative minimum tax (AMT) of 15% on corporations that earn annual revenue of at least $1 billion. This measure should generate $313 billion in additional revenue.
The the current corporate tax rate is 21%. According to Democrats, however, “some 200 or more large corporations are using tax loopholes to avoid paying that rate and are actually paying less than 15 percent.” The corporate AMT would impose a mandatory minimum tax of 15% on adjusted income for corporations with profits over $1 billion.
Businesses would be allowed to claim net operating losses and tax credits from AMT as well as a tax credit against regular corporate income tax for AMT paid in previous years, in the extent that the regular tax payable in a year exceeds 15% of the adjusted financial value of the company. tax return. The measure would be in effect for tax years beginning after December 31, 2022.
Deficit reduction and inflation
The bill is called the Reducing Inflation Act for a reason. It shines a light on what Democrats see as a top taxpayer concern, inflation. Reducing the deficit, Democrats say, will help reduce inflation. Republicans say the new spending bill will make inflation worse.
The Congressional Budget Office says in its analysis that the IRA will have a “negligible” effect on inflation in 2022 and into 2023.”
The essential
As with most laws, the long-term effects of the law on reducing inflation are not known. The Congressional Budget Office (CBO), a nonpartisan body, for example, forecasts a net deficit reduction of $102 billion over the next decade. The Committee for a Responsible Federal Budget (CRFB) is calling for a cut of $305 billion and Senate Democrats are also planning for a total deficit reduction of more than $300 billion. A study of the Penn Wharton Budget Model (PWBM) found a deficit reduction of $248 billion.
Since the IRA represents a scaled-down version of Build Back Better, its goals are modest compared to the massive legislation first proposed by the Biden administration. In the back and forth on deficit reduction and inflation estimates, it’s worth noting that the IRA represents the first time in years that the approximation has been used for deficit reduction. Also, remarkable and little discussed: the IRA is the most significant deficit reduction bill since the Budget Control Act of 2011. These two aspects represent a significant development.