The Senate passes the Inflation Reduction Act. What’s inside.
Senate Democrats passed the Cut Inflation Act of 2022 in a party vote after a marathon weekend session.
After a series of procedural votes on Saturday evening and votes on amendments on Sunday morning, the Senate approved the bill 51-50, with Vice President Kamala Harris voting in the event of a tie.
The legislation aims, among other things, to fund clean energy initiatives, reduce health care costs and create new jobs. About $433 billion would be spent on new investments, while the bill would cut government budget deficits by about $300 billion, according to the latest version released by the Senate.
President Joe Biden praised the work of lawmakers and urged the House to pass the bill so he could sign it. “Today, Senate Democrats stood with American families for special interests,” Biden said in a statement released by the White House. “I ran for president promising to make government work again for working families, and this bill does just that.”
Holdout Sen. Kyrsten Sinema, D-Arizona, finally agreed on Thursday to side with her fellow party members on the condition that significant changes be made to the legislation. The bill no longer contains provisions that would end the so-called “deferred profit loophole” which allows wealthy financiers to pay a lower rate of tax on their income.
While the bill may continue to undergo revisions, here are five things to watch out for.
Cheaper prescription drugs
If the Cut Inflation Act passes, Medicare could negotiate directly with drugmakers on prescription drug prices for some of their most expensive drugs, meaning patients would likely pay less. If drug companies raise prices faster than inflation, the new bill would require them to reimburse Medicare patients for the difference. There would also be a $2,000 per year cap on Medicare enrollees’ out-of-pocket expenses for prescription drugs.
Combined, these policies would save the federal government about $288 billion over the next 10 years, according to estimates by the Congressional Budget Office. However, critics say the new policies would discourage innovation from pharmaceutical companies.
Tax credits for EV buyers
The bill would invest $369 billion in programs to accelerate the transition to cleaner energy, increase national energy production and cut carbon emissions by 40% by 2030. The money would go to solar panels, wind turbines and other clean energy sources… and consumers of electric vehicles could also benefit.
Electric vehicle buyers are currently eligible for a tax credit of up to $7,500, but the benefits are limited to the first 200,000 eligible vehicles sold by each automaker. The new bill would lift that cap and provide up to $4,000 in credits to people who buy used electric vehicles.
Raise corporate taxes
Many corporations pay very low taxes despite earning large profits according to generally accepted accounting principles, commonly referred to as accounting income. This is because their taxable profits are generally lower than their accounting income, due to a multitude of deductions and credits under the Internal Revenue Service code.
The Cut Inflation Act would require companies with at least $1 billion in revenue to apply a 15% tax rate on their book income. If this turns out to be higher than the traditional calculations – 21% of profits minus deductions and credits – companies would have to pay the 15% rate.
The measure is expected to generate $313 billion in new revenue, providing more than 40% of the bill’s funding. However, many economists say it would be better to raise the corporate tax rate or eliminate some tax breaks.
Taxes on share redemptions
Democrats also have a 1% excise tax on stock buybacks, which has skyrocketed in recent years and is often attacked. Critics argue that companies should use profits to reinvest and grow, or repay shareholders via dividends, rather than artificially driving up stock prices.
A buyout tax could bring in about $74 billion in revenue, Senate Majority Leader Chuck Schumer, DN.Y, told reporters on Friday.
However, some say taxing redemptions would have a dramatic effect on the overall market, hurting both family and institutional investors. “The tax on redemptions could slow one of the key drivers of stock market demand,” Mark Hackett, head of investment research for Nationwide Investment Management, wrote on Friday.
As the name of the bill suggests, one of its main purposes is to curb searing inflation. Deficit reduction could dampen demand in the economy and help lower prices. Other provisions of the bill, such as prescription drug price reform and the electric vehicle credit, are expected to reduce health care and energy costs, respectively.
However, many economists say the bill’s net impact on inflation is likely to be quite modest and won’t be felt for some time, given how long it will take to enact many of its programs.
Write to Evie Liu at firstname.lastname@example.org
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