Build Back Better, Rebuilt
This past weekend, Senate Democrats passed their long-awaited yet slimmed down version of President Biden’s Build Back Better climate and healthcare spending bill, largely paid for by increased corporate taxes and IRS enforcement. While the reconciliation bill is not final, the news represents a win for congressional Democrats who are back in their districts for the August recess to rally their voters ahead of the midterms.
The bill, titled the Inflation Reduction Act, was revived after Sen. Joe Manchin (D-WV), and later Sen. Kyrsten Sinema (D-AZ), lent their support once Majority Leader Chuck Schumer (D-NY) cut the bill’s overall price tag, included fossil fuel and drought mitigation funding, and tweaked certain tax provisions.
The Act’s final vote is set to occur in the House this Friday before heading to President Biden’s desk. Below is a summary of key provisions included in the Inflation Reduction Act.
Energy and Environment
The Inflation Reduction Act creates several green energy production and investment tax credits while expanding existing ones, including those dealing with renewable energies, alternative fuels, and electric vehicles (EVs). The EV credits are in addition to the Department of Energy’s (DOE) $5 billion in grant and loan authority included in the bill to incentivize domestic production of EVs, hybrids, and hydrogen vehicles.
Under the bill, the DOE could also approve new offshore wind projects, wind lease sales, and oil and gas leases, although those fossil fuel leases would be subject to higher royalties. The DOE would also be tasked, along with its federal Tribal counterparts, with implementing billions of dollars in several energy efficiency and emissions reduction programs, in addition to programs dealing with electric grid buildout and enhancement. The Departments of Agriculture and Housing & Urban Development would receive similarly-purposed funding to support rural farmers and the affordable housing market, respectively.
The EPA would receive over $20 billion to implement various greenhouse gas reduction programs by providing financial and technical assistance to states, municipalities, tribes, and nonprofits, particularly by reducing emissions through new technologies in environmental justice communities. The EPA could also charge certain methane emissions fees at fossil fuel facilities. Meanwhile, the National Oceanic and Atmospheric Administration (NOAA) would receive roughly $3 billion to conduct climate research and assist coastal communities.
The Transportation Department would receive roughly $7 billion to aid disadvantaged communities negatively impacted by previous infrastructure projects while incentivizing various public and private transportation facilities to reduce emissions with clean strategies, materials, and technologies. Such resources include grants to purchase sustainable aviation fuel and clean heavy-duty vehicles. The Postal Service would also receive $3 billion to purchase and install zero-emission delivery vehicles.
Healthcare & Prescription Drugs
This section of the Inflation Reduction Act underwent some last-minute changes after the Senate Parliamentarian struck certain provisions as violative of the chamber’s reconciliation rules, specifically those regarding inflation-related prescription drug rebates and insulin price controls.
The Inflation Reduction Act would provide $3 billion to require the Department of Health and Human Services (HHS) to identify and then negotiate to lower high-cost prescription drug prices under Medicare Parts B and D. Drugmakers who fail to negotiate would be required to pay an excise tax of up to 95%, and those who agree on a price but charge above would pay a penalty of up to 10 times the overage. Drugmakers would also be required to enter agreements with HHS to provide discounts on certain drugs, or else pay a penalty.
The bill would make further changes to Medicare Part D by capping annual out-of-pocket prescription drugs under the program at $2,000 beginning in 2025. It would also expand Medicare Part D subsidies for certain low-income seniors while reducing the government’s reinsurance rates for seniors who have met various out-of-pocket caps.
Business Tax Changes
The Inflation Reduction Act is paid for through a slew of tax code changes long-sought by congressional Democrats. First, the bill would impose a 15% minimum corporate tax on billion-dollar corporations’ “book income.” It would also set a 1% excise tax on stock buybacks, a provision which replaced the bill’s carried interest tax on hedge fund managers which was removed to gain Sen. Sinema’s support.
Corporations could deduct losses and certain tax credits to offset the minimum tax, and avoid taxes from stock buybacks of under $1 million or made as part of internal retirement plans, organizational restructuring, and generally other purchases not designed to increase shareholder income.
Finally, the legislation would provide roughly $80 billion to the IRS to conduct increased enforcement activities, internal operations support, IT modernization, and customer service and taxpayer advocacy initiatives. The non-partisan Congressional Budget Office says that these measures would bring in around $203 billion in revenue over 10 years, but the Administration and congressional Democrats have repeatedly stated that this funding would not increase taxes on those making income of $400,000 or less annually.