September 27, 2022

The Inflation Reduction Act

 

The Inflation Reduction Act, The Senate passed Democrats’ $750 billion health-care, tax-cut, and climate-change legislation on Sunday afternoon, giving President Joe Biden and his party a big victory.

 

The final vote was 51-50 along party lines, with Vice President Kamala Harris breaking the tie. The plan is the result of lengthy talks, and its final approval would provide Democrats with an opportunity to fulfill big legislative goals ahead of the 2019 midterm elections.

The Democratic-controlled House must approve the plan, which is slated to take up the legislation on Friday, August 12, before Biden can sign it into law.

The sweeping bill, known as the Inflation Reduction Act, would represent the largest climate investment in US history, as well as significant changes to health policy, such as giving Medicare for the first time the ability to negotiate the prices of certain prescription drugs and extending expiring health care subsidies for three years. The measure would cut the deficit, be paid for with new taxes (including a 15% minimum tax on major firms and a 1% tax on stock buybacks), and improve the IRS’s ability to collect.

It would produce more than $700 billion in government income over ten years, spend more than $430 billion to decrease carbon emissions, prolong health insurance subsidies under the Affordable Care Act, and use the remainder of the additional revenue to lower the deficit.

Senate Democrats used a unique, filibuster-proof procedure to enact the law without Republican support, despite having a slim 50-seat majority. The bill was passed following a lengthy series of acrimonious amendment votes known as a “vote-a-rama” that lasted about 16 hours, from late Saturday night to Sunday afternoon.

Democratic Senator Joe Manchin of West Virginia told CNN that the legislation he helped write is “a very balanced bill.”

“I believe we’ll all profit from it, as will the country,” Manchin told CNN. “We now have energy security, which is exactly what we were seeking. And the ability to invest in future energy.”

In a statement issued on Sunday, Biden applauded the Senate for approving the measure, congratulating Democrats in the chamber, and highlighting the legislation’s climate initiatives and health-care provisions.

“Today, Senate Democrats stood with the American people over special interests. They voted to cut the cost of prescription pharmaceuticals, health insurance, and everyday energy bills, as well as to reduce the deficit, while finally ensuring the wealthiest businesses pay their fair share,” Biden added.

The $750 Billion bill vs $3.5 trillion reconciliation package

The effort is a pale shadow of the $3.5 trillion reconciliation proposal proposed by the governing party last year.

Manchin, a centrist Democrat, shifted direction after blocking the inclusion of any climate or tax provisions in mid-July. The bills join a handful of significant but limited proposals to lower prescription medication prices and extend increased ACA subsidies for three years.

The establishment of a federally funded – “paid family and sick leave” program, the extension of the enhanced child tax credit, the expansion of Medicare benefits, and many other provisions aimed at broadening the nation’s social safety net are all gone.

The agreement is significantly less than the $1.75 trillion version enacted by the House in October. However, Manchin, whose vote is critical to get legislation through the Senate through the reconciliation process, voted against the House bill in December. A simple majority of senators were required to pass the bill through reconciliation.

Democratic leaders had been engaging with Manchin to see what he would be prepared to endorse. The senator previously expressed concerns about the legislation’s possible influence on inflation, which has risen dramatically in the last year. Economists, however, dispute the bill’s actual impact on inflation.

According to the Congressional Budget Office, the latest version of the package would cut the deficit by about $300 billion over a decade.

 

Here’s what’s included in the bill:

The Senate parliamentarian, whose approval is required for a bill to be reconciled, concluded that most drug price clauses might be included. On the other hand, she rejected one that would have applied to the private insurance market.

The Congressional Budget Office already rated the drug price reforms, estimating they would save the federal government $288 billion over a decade.

Democrats, on the other hand, are waiting for new cost estimates from the CBO to see how the ruling changes their deficit projections. The parliamentarian’s decision is expected to reduce the package’s deficit reduction.

Medicare drug price negotiation:

The measure would provide Medicare the authority to negotiate the prices of certain expensive pharmaceuticals administered in doctors’ offices or acquired at pharmacies. The Secretary of Health and Human Services would negotiate the pricing of ten pharmaceuticals in 2026 and another fifteen drugs in 2027 and 2028. In 2029 and beyond, the number would climb to 20 medications per year.

This contentious provision is significantly more limited than the one previously supported by House Democratic leaders. However, it would pave the way for a long-standing party aim of allowing Medicare to use its clout to decrease medication costs.

Inflation cap:

The measure would penalize pharma corporations if their prices increased faster than inflation. The parliamentarian, however, determined that the provision could only apply to Medicare and not to the commercial insurance market, as the Democrats had hoped.

Medicare out-of-pocket drug cost cap:

The bill would restructure Medicare’s Part D drug plans so that seniors and individuals with disabilities would not have to spend more than $2,000 per year for prescription drugs purchased at a pharmacy. Insurance companies and pharmaceutical companies would have to foot a larger portion of the bill.

Free vaccines for seniors:

All vaccines would be provided at no cost to Medicare enrollees. Only select vaccines, such as those for Covid-19, the flu, and pneumonia, are currently free.

Affordable Care Act subsidies: 

Democrats are also considering extending the enhanced federal premium subsidies for Obamacare coverage through 2025, a year later than Congress had envisioned. They would then not expire until after the 2024 presidential election.

The subsidies were increased this year as part of the Democrats’ $1.9 trillion coronavirus relief program dubbed the American Rescue Plan, which was passed in March 2021. They have reduced the cost of health insurance on the Obamacare exchanges, resulting in record enrolment this year.

Enrollees pay no more than 8.5 percent of their income for coverage, a decrease from nearly ten percent previously. Lower-income policyholders receive subsidies that remove their premiums.

Additionally, persons earning more than 400 percent of the federal poverty level are eligible for assistance for the first time.

According to the Kaiser Family Foundation, if the additional federal aid is allowed to expire at the end of the year, nearly 13 million subsidized subscribers will see their premiums rise in 2023. According to an Urban Institute study, more than 3 million people could lose their health insurance.

Democrats are seeking to avoid the negative publicity resulting from such premium rises. If Congress does not act, consumers will find out how much more they may have to pay in the fall. On November 1, a week before Election Day, open enrollment begins.

According to the CBO, extending the expanded subsidies would cost $64 billion.

Cheaper insulin:

Democrats included a provision to the package that would cap the amount Americans pay for insulin in Medicare and the commercial insurance market at $35 per month. The parliamentarian decided that incorporating the private insurance market into the legislation violated reconciliation requirements. Democrats retained the provision in the measure, but Republicans raised a point of order to compel a vote that removed the limit on the private insurance market. The Medicare insulin cap is still in effect.

Climate provisions:

The agreement would be the largest climate investment in US history. Majority Leader Chuck Schumer’s office says it would reduce US greenhouse gas emissions by 40% by 2030.

The new accord covers everything from electric vehicle tax subsidies to investments in environmental justice communities.

Extending tax benefits for electric vehicles was approved over objections from Manchin. The current tax credits of up to $4,000 for a used electric vehicle and $7,500 for a new one would be maintained. However, the income eligibility threshold would be reduced, which is a key demand of Manchin.

The bill also includes 10-year consumer tax credits for heat pumps, rooftop solar, electric HVAC, and water heaters. It contains $60 billion in support for environmental justice communities and legacy pollution reduction.

It also allocates $60 billion to domestic sustainable energy manufacturing and $30 billion to a tax credit for wind, solar, and battery storage.

Democrats confirmed on Thursday afternoon that the plan included $4 billion in additional drought aid, a crucial negotiating priority for Sinema amid the Southwest’s multi-year drought.

The tax credits will be technology agnostic, which means they will not favor renewables over fossil fuels equipped with carbon-cutting technologies. According to Sen. Ron Wyden, Senate Finance Chairman and a Democrat from Oregon, they are intended to reward those that lower their emissions the most.

The agreement also includes significant features such as a methane program that would impose a fee on oil and gas firms that emit methane above a particular level. It also contains $27 billion for a “clean energy accelerator,” which is essentially a green bank to leverage public and private funds to create more green projects.

Tax provisions:

To increase revenue, the plan would levy a 15% minimum tax on the income that major firms report to shareholders, known as book income, rather than the Internal Revenue Service. According to updated estimates provided by Schumer, the plan, which would raise $258 billion over a decade, would apply to firms with profits of more than $1 billion.

Concerned about effect of this provision on certain industries, notably manufacturers, Sinema has claimed that she negotiated adjustments to the Democrats’ plan to limit how corporations can depreciate assets for tax purposes.

However, Sinema vetoed her party’s proposal to close the carried interest loophole, which permits investment managers to classify a portion of their salary as capital gains and pay a 20% long-term tax rate on capital gains rather than income tax rates of up to 37%.

The provision would have increased the time investment managers’ profit interest must be held from three to five years for taking advantage of the reduced tax rate from three to five years. Taking care of this loophole, which would have produced $14 billion over a decade, had long been a focus of congressional Democrats.

Instead, a 1% excise tax on corporate stock buybacks was introduced, raising an additional $74 billion, according to Schumer’s office.

The measure also includes an increase in IRS spending for tax enforcement, which would raise $124 billion.

Democrats believe families earning less than $400,000 per year will be exempt, as promised by Biden. Republican lawmakers, on the other hand, are latching on to a Joint Committee on Taxation analysis that showed the measure would disproportionately affect lower-income and middle-class Americans. Economists anticipate that firms will pass a portion of the corporate tax on employees in the form of lower salaries.

Small enterprises would not be levied with any new taxes.

Manchin also shot down one of Schumer’s top priorities: lifting the $10,000 cap on state and local tax deductions, known as SALT, which was included in the GOP tax reform legislation in 2017 and impacted several states in the Northeast and West Coast.

The agreement also excludes tax levies on wealthy persons, which were included in the House draft last year.

 

Here’s what was left out of the bill:

Universal pre-kindergarten and decreased child care costs:

The House bill would have given free pre-kindergarten for 3- and 4-year-olds, increasing access to 6 million children annually. It would also have limited child care expenditures for families with children under the age of six to no more than 7% of income for those earning up to 250% of the state median income, allowing access to around 20 million youngsters. According to the CBO, funding for these projects would have lasted six years and cost $381.5 billion.

Paid family and sick leave:

Biden also advocated for a federally sponsored “paid family and sick leave” program for Americans numbering who do not already have access to this benefit through their job. According to the CBO, the House bill featured four weeks of paid family and sick leave, which would have cost $205.5 billion.

Enhanced child tax credit:

The increased child tax credit, which offered $300 per month for each kid under the age of six and $250 per month for each child aged six to seventeen, would have been extended through 2022 for more than 35 million families under the House measure.

The prior improvement, included in the coronavirus alleviation package, was only in effect until 2021.

Heads of families with annual incomes of up to $112,500 and joint filers with annual incomes of up to $150,000 would have qualified for the full enhanced credit. However, unlike in 2021, only these families would have received the payments this year in monthly installments. Higher-income eligible parents would have had to seek the credit on their tax return the following year.

The credit would have been permanently refundable, allowing low-income families to continue to qualify.

According to the CBO, this credit, coupled with the earned income tax credit, would have cost around $203 billion.

Earned income tax credit:

As part of the coronavirus relief package, the enhanced earned income tax credit would have been extended through 2022, benefiting 17 million low-wage childless workers.

The House bill would have roughly increased the maximum credit available to childless workers, expanded eligibility, lowered the minimum age, and eliminated the upper age limit. According to the CBO, this credit, coupled with the expanded child tax credit, would have cost around $203 billion.

Home health care:

Biden’s plan called for permanent improvements in Medicaid coverage for home care services for seniors and individuals with disabilities, intending to lower the 800,000 people on state Medicaid waiting lists.

The proposal also aimed to raise the standard of caregiver jobs. According to the CBO, the plan would have cost approximately $158 billion.

Affordable housing:

The measure would have directed $25 billion toward the building, restoration, or purchase of low-income housing, as well as the establishment and preservation of affordable rental housing. It would have allocated $65 billion to address the backlog of public housing capital requirements and would have increased rental assistance for hundreds of thousands of families.

The bill would also have provided down payment help and funding for community-led revitalization initiatives in underserved neighborhoods. It also included $24 billion in housing vouchers and related services funding.

According to the CBO, the initiative would have cost approximately $148.1 billion.

Lowering college costs:

The House bill would have increased the maximum Pell grant for about 5 million students, currently enrolled in public and private nonprofit universities by $550 and expanded access to undocumented students known as Dreamers, wo were brought to the United States as children.

It would have made investments in historically Black colleges and universities and other institutions that assist underserved areas. In addition, money for workforce development would have been boosted.

According to the CBO, these proposals would have cost a total of $39.8 billion.

Biden originally proposed making community college tuition-free for two years, but that provision was eliminated from the House version.

Children’s nutrition:

Under the House measure, roughly 9 million children would have received free school meals during the school year, and parents of 29 million children would have received a monthly $65 per child subsidy to purchase food during the summer.

Congress just authorized legislation to prolong pandemic school meal waivers.

Medicaid coverage gap:

Democrats have advocated for offering Affordable Care Act premium subsidies for low-income Americans in 12 states that are not expanding Medicaid, allowing them to purchase Obamacare policies with no monthly premiums until 2025.

According to the CBO, doing so would have cost around $57 billion.

Furthermore, the plan would have mandated state Medicaid programs to provide women with 12 months of eligibility after giving birth. Currently, states must provide at least 60 days of coverage.

Medicare hearing benefits:

Under the plan that passed the House, hearing services would have been covered by Medicare beginning in 2023.

According to the White House, only 30% of seniors over 70 who could benefit from hearing aids have ever used them.

According to the CBO, this proposal would have cost $36.7 billion.

Biden had previously advocated for expanding Medicare to include vision and dental coverage.

Extending Medicare solvency:

Senate Democrats announced in early July that they had reached an agreement to extend Medicare’s solvency by a few years by closing a tax loophole. The proposal would have required owners of certain “pass-through” firms to pay the 3.8 percent net investment income tax if they report business income on their personal tax filings. It would have applied to people earning more than $400,000 per year and joint filers earning more than $500,000.

However, Manchin torpedoed that accord as well.

According to recent analysis by the program’s trustees, Medicare’s hospital insurance trust fund will only be able to pay scheduled payouts until 2028.

 

How Senate Democrats voted along party lines to pass the bill

Senate Democrats have long aspired to achieve a landmark legislation package that would include significant party agenda items. Still, they have battled for months to reach an agreement that garnered unanimous support from their caucus.

Manchin was instrumental in drafting the measure, which moved forward only after the West Virginia Democrat and Senate Majority Leader Chuck Schumer revealed a compromise at the end of July, a big success for Democrats after earlier negotiations had faltered.

Arizona Sen. Kyrsten Sinema offered vital support on Thursday night after party leaders agreed to tweak new tax measures, saying she would “go forward” on the massive economic package.

However, Sinema, Manchin, and other senators worked all weekend to make critical changes to the plan.

To avert a last-minute collapse of the bill on Sunday, Democrats devised a strategy to appease Sinema, who was concerned about the impact of the 15% corporate minimum tax on subsidiaries owned by private equity. Senate Democrats agreed to a tighter tax proposal. Still, instead of paying for it by changing the SALT deduction, as recommended by Senate GOP Whip John Thune of South Dakota, they extended the limits on the amount of losses that corporations may deduct for another two years.

The move was made to keep House Democrats, mainly from coastal areas, who campaigned to abolish SALT deduction limitations from voting against the package when it comes up later this week.

Sinema said in a statement following the bill’s passage in the Senate that it would help Arizonans by “boosting innovation and spurring job creation”. Arizonians can “build better lives for themselves and their families by lowering prices, making health care more affordable and accessible, and securing Arizona’s water and energy future,”

In a positive indicator for the bill’s passage, key House Democrats indicated later Sunday that they will support for it despite previous demands on SALT.

Representative Josh Gottheimer of New Jersey was a member of the “No SALT, No Deal” caucus. However, he stated that the plan meets his criteria because it does not raise individual income tax rates.

Rep. Mikie Sherrill of New Jersey, another caucus member, agreed: “I will also maintain my commitment to ensuring that any debate of changes to the 2017 tax legislation begins with SALT. I will vote in favor of this legislation because it does not raise taxes on families in my area but considerably reduces their costs.”

Republicans took advantage of the weekend’s “vote-a-rama” to put Democrats on the spot and force politically difficult votes. They were also successfully deleting a major insulin provision that would have limited the price of insulin on the private insurance market to $35 per month, which the Senate parliamentarian found was not in accordance with the Senate’s reconciliation procedures. The $35 insulin cap for Medicare recipients remains in effect.

In a statement, Senate Minority Leader Mitch McConnell said the package had “huge job-killing tax hikes” and amounted to a “war on American fossil fuel.” Democrats, according to the Kentucky Republican, “do not care about the priorities of middle-class families.”

“And their reaction to the uncontrolled inflation they’ve produced is a plan that experts believe would do nothing to reduce inflation,” McConnell said. “The American people have established their priorities. Environmental regulation accounts for 3% of the total. Americans demand solutions to the problems of inflation, crime, and the border.”

 

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