The Senate passed the Democrats’ Cut Inflation Act in a party vote on Sunday afternoon, delivering the long-awaited centerpiece of President Biden’s agenda.
Democrats rallied behind $430 billion in climate, health care and tax reform after Senate Majority Leader Charles Schumer (DN.Y.) reached a last-minute deal with the Sen. Joe Manchin (DW.Va.), who had retained the previous proposals.
The House is expected to approve the legislation on Friday and send it to Biden’s office.
Here is a summary of the contents of the Inflation Reduction Act:
ENVIRONMENT, ENERGY AND CLIMATE
Businesses would receive incentives for deploying low-carbon and zero-carbon energy sources.
- Tax credits are granted for energy production and investment in technologies such as wind, solar and geothermal energy. The investment tax credit now also applies to battery storage and biogas.
- Tax credits would be created or extended for additional technologies and energy sources, including nuclear energy, hydrogen energy from clean sources, biofuels and technology that captures carbon from fossil fuel power plants .
- Many incentives also contain bonuses for companies based on the amount they pay their workers and offer credits for manufacturing their steel, iron and other components in the United States.
Consumers and businesses are encouraged to make cleaner energy choices.
- The tax credits are extended to residential clean energy expenditures, including rooftop solar, heat pumps and small wind power systems. Consumers can get credits for 30% of their spending until 2032, and the credits decline thereafter.
- Tax credits of up to $7,500 are available to consumers who purchase electric vehicles, but this credit comes with stipulations that can make it difficult to qualify vehicles.
- A tax credit would be expanded for energy efficiency in commercial buildings.
Some fossil fuel production on public lands would be enhanced.
- The future of solar and wind on public lands and wind on public waters would be tied to the requirement to hold lease sales that open up new oil and gas production.
- The bill restores the results of a recent sale of offshore oil and gas leases that was canceled for environmental reasons. The Home Office would be required to hold at least three more offshore oil and gas concession sales by next October.
New programs boost climate investment.
- A new program aims to reduce emissions of methane, a global warming gas, from oil and gas, both by providing grants and loans to help companies control their emissions and by levying royalties on producers with excess methane emissions.
- $27 billion would go to a green bank that would provide more incentives for clean energy technologies.
Costs are rising for the production of fossil fuels on public lands.
- Increased minimum royalties for companies to pay the government for oil and gas they extract on public lands and waters. A royalty is added to the extraction of the gas which is then flared or discharged as waste instead of being sold as fuel.
Communities facing high pollution loads get relief.
- $3 billion would go to block grants for environmental justice – community-led programs addressing the damage caused by climate change and pollutants, including $20 million for technical assistance at the community level, up to the fiscal year 2026.
- More than $3 billion is allocated to funds for air pollution monitoring in low-income communities. Nearly half of the funds — $117 million — would go specifically to communities near industrial pollutants.
- An excise tax on imported oil and crude oil products to fund the cleanup of industrial disaster sites is increased from 9.7 cents to 16.4 cents a barrel. Restoring the tax is expected to bring in $11 billion.
- The bill permanently extends and increases the Black Lung Disability Trust Fund, a tax on coal production to fund the claims of workers with the disease. Black lung, caused by long-term exposure and inhalation of coal dust, affects at least 10% of coal miners with at least 25 years of experience, according to a 2018 study by the National Institute for Occupational Safety and Health.
—Rachel Frazin and Zack Budryk
HEALTH CARE
Medicare can negotiate lower prices.
The bill would allow Medicare to negotiate prices for certain drugs for the first time, a policy Democrats have been trying to implement for years despite fierce objections from the pharmaceutical industry. The provisions save more than $200 billion over 10 years.
- This would allow Medicare to negotiate lower prices for 10 expensive drugs starting in 2026, increasing to 20 drugs by 2029. There is a steep penalty if a pharmaceutical company does not come to the table: a tax of up to up to 95%. drug sales. There is also a cap that the traded price cannot exceed.
- In a deal with moderates including Sen. Kyrsten Sinema (D-Arizona), only older drugs are subject to negotiation after a nine-year period for most drugs and 13 years for more complex “biologic” drugs . That means the negotiations are more limited than many Democrats wanted.
Drug costs can be capped, but largely only for Medicare.
The bill includes other measures to cap drug costs. The provisions still largely apply only to seniors under Medicare, not the millions of people who get health insurance through their jobs, in part because complex Senate rules limited the scope of provisions.
- If drug companies raise Medicare prices faster than the rate of inflation, they must reimburse the difference to the government.
- Democrats tried to apply that provision to the private market, but the congressman ruled it violated Senate rules used to circumvent a GOP filibuster.
- In one of the most tangible provisions for patients, the bill caps drug costs at $2,000 per year for seniors on Medicare, starting in 2025.
- The bill also caps patient insulin costs at $35 per month, but only for seniors on Medicare. Republicans voted against overturning the Senate Congressman’s decision to extend this protection to patients with private insurance.
Those enrolled in the ACA plans receive an extension of premium support.
The measure also builds on the Affordable Care Act (ACA) by extending enhanced financial assistance to help those enrolled in ACA plans pay premiums for three years. The extra aid would otherwise have expired at the end of this year, creating a cliff. The provision expands eligibility to allow more middle-class people to receive premium aid and increases the overall amount of aid.
—Peter Sullivan
TAXES
Large companies will pay for climate and health measures in the bill.
The bill introduces new corporate taxes to pay for its climate and health measures.
The centerpiece of his tax plan is a minimum tax of 15% on income that large corporations declare to their shareholders, a tax known as the minimum tax on the books. The initial proposals put the amount of revenue generated by the book tax at $313 billion, more than 40% of the $740 billion generated by the legislation as a whole.
The tax applies to businesses reporting $1 billion in annual revenue. It would only affect about 150 large companies, according to the Joint Committee on Taxation.
Sinema demanded last-minute minimum tax exclusions that favored US manufacturing and private equity firms.
- The tax will exempt businesses that take advantage of accelerated depreciation, a popular deduction that helps pay for capital investments such as new equipment.
- Small businesses that are subsidiaries of highly profitable private equity firms will also be exempt from minimum tax.
The IRS gets a funding boost.
Another key measure allocates $80 billion to bolster enforcement at the IRS. Democrats hope that with more employees and better technology, the IRS can take a closer look at wealthy people and make sure they aren’t dodging taxes. This additional revenue is expected to reduce the deficit by $203 billion over the next decade.
Redemptions of shares will benefit from an additional tax.
The bill enacts a 1% excise tax on share buybacks to replace lost income in appeasing Sinema. Democrats expect the provision to raise $74 million over a decade.
Share buybacks by S&P 500 companies have exploded in recent years and are on track to top $1 trillion this year. Companies buy back their shares to reward shareholders and drive up their stock price by artificially limiting supply.
- The tax will impact the nation’s biggest companies that rely on multibillion-dollar buyouts to boost their stock prices, including Apple, Nike and Exxon Mobil.
- Democrats have criticized the practice, arguing that companies should invest in workers and innovation instead of buying back stock.
To further recover revenue lost to the private equity industry, the bill also extends a set of limitations on the losses companies can deduct from their taxes. Limits prevent wealthy individuals from significantly reducing or even eliminating their income tax. Sen. Mark Warner (D-Va.) said extending the caps would bring in $52 billion.
— Tobias Burns and Karl Evers-Hillström