The Senate passed the climate and tax legislation known as the Inflation Reduction Act of 2022 on Sunday. The bill includes an investment of about $370 billion to combat climate change and several major tax provisions, the Washington Post reported.
The passage came after an all-night session on Saturday, during which senators proposed and voted on numerous amendments. The legislation now moves to the House of Representatives, where it is expected to pass this week, and then to President Joe Biden, who is expected to sign it into law. The bill received a 50-50 vote in the Senate, with the support of every Democrat and no Republicans. Vice President Kamala Harris provided the tie-breaking vote. The legislation's $370 billion investment to combat climate change would support a host of projects, including grants and loans to corporations to reduce greenhouse gas emissions, $27 billion for a green bank that would provide more incentives for clean energy technology, and a series of community block grants.
Among the major tax provisions in the legislation are the following:
A 15 percent corporate minimum tax. The legislation would create a 15 percent corporate minimum tax that would apply to the profits that the largest corporations report on their financial statements to shareholders, known as book income, according to the New York Times. The tax would apply to companies reporting $1 billion in annual earnings. It would only apply to around 150 large firms, according to the Joint Committee on Taxation, the Hill reported. The Hill also reported that the amount of revenue expected to be raised by this tax is $313 billion—more than 40 percent of the $740 billion to be raised by the legislation as a whole.
A 1 percent tax on stock buybacks. The bill would impose a 1 percent excise tax on stock buybacks. Companies buy back their stock in order to reward shareholders and boost their stock price by artificially limiting supply. Democrats have criticized the practice, arguing that companies should invest in workers and innovation instead of buying back stock. The tax new will apply to the country’s largest companies that rely on multibillion-dollar buybacks to raise their stock prices, such as Apple, Nike and ExxonMobil. A provision to close the carried interest loophole—which benefits managers of hedge funds and private equity funds—was removed in order to secure the vote of Sen. Kyrsten Sinema (D-Ariz.). The stock buyback provision was intended to replace the revenues lost by removing that provision. Democrats expect the provision to raise $74 million over a decade.
More funding for the IRS. Another provision would allocate $80 billion to increase enforcement at the IRS. Democrats hope that, with more employees and better technology, the IRS can more closely examine wealthy individuals and ensure that they aren’t evading taxes. That extra revenue is expected to lower the deficit by $203 billion over the next decade.
In addition, according to the Hill, the legislation includes several tax incentives for businesses to lower their carbon footprint. They include:
- Extended tax credits for energy production and investment in technologies including wind, solar and geothermal energies. This credit would also apply to battery storage and biogas.
- New or extended tax credits for additional technologies and energy sources, including nuclear energy, hydrogen energy coming from clean sources, biofuels and technology that captures carbon from fossil fuel power plants.
- Bonuses for companies based on how much they pay their workers and offer credits for manufacturing their steel, iron and other components in the United States.
- An expanded tax credit for energy efficiency in commercial buildings.
Consumers would also be able to take advantage of these credits:
- Extended tax credits are for residential clean energy expenses, including rooftop solar, heat pumps and small wind energy systems. Consumers can get credits for 30 percent of expenditures through 2032, and the credit phases down after that.
- Tax credits of up to $7,500 for consumers who buy electric vehicles—although many vehicles would not qualify.
In addition, the bill included some significant health care provisions. It would enable Medicare to negotiate prices for some drugs for the first time. The provisions could save over $200 billion over ten years. Specifically, it would allow Medicare to negotiate lower prices for ten high-cost drugs beginning in 2026, ramping up to 20 drugs by 2029. The bill also caps out-of-pocket drug costs at $2,000 a year for seniors on Medicare, starting in 2025.
However, while the bill also caps patients’ insulin costs at $35 a month, that applies only to seniors on Medicare. Republicans voted against a provision that would have extended the cap to patients with private insurance. Because the Senate parliamentarian ruled that this provision was not subject to the reconciliation process, like the rest of the bill, it would have required 60 votes, and there were only 57, including seven Republicans.
The legislation also extends enhanced financial assistance in order to help people enrolled in Affordable Care Act plans afford premiums for three years. The extra help otherwise would have expired at the end of this year. The provision also expands eligibility to allow more middle-class people to receive premium help and increases the amount of help overall.
Senate Majority Leader Charles E. Schumer (D-N.Y.) said, in an interview with the Post, “This is one of the most significant pieces of legislation passed in a decade. Things that Americans have longed for and couldn’t get done.”
On the other side of the aisle, Sen. Mike Crapo (R-Idaho) said that the bill "does nothing to bring the economy out of stagnation and recession. But rather, the Inflation Reduction Act of 2022 gives us higher taxes, more spending, higher prices—and an army of IRS agents.”
In a statement, President Biden praised the Senate Democrats for having “sided with American families over special interests.” Acknowledging the “many compromises” that led to the vote, he encouraged the House to act quickly.