After months of back and forth, Sen. Joe Manchin (D-WV) has finally found a version of Build Back Better that he actually likes. Now the question for Democrats is whether they can hold their caucus together to quickly pass it.
On Wednesday, Manchin put out a statement in support of a new compromise, the Inflation Reduction Act of 2022, which addresses everything from prescription drug costs to corporate taxes to the climate. The new bill, which Democrats released a one-page fact sheet for, contains significantly less than what the party previously pushed for in Build Back Better but is far more expansive than the reconciliation package Manchin signed on to a few weeks ago.
As of earlier this month, Manchin was only on board for a bill that would lower prescription drug costs and extend ACA subsidies. He’d argued that doing anything more would increase inflation and hurt the economy. Now, Manchin says, he has found a way to decrease inflation (whether that’s correct is unclear) and advance Democrats’ legislative agenda.
What’s in the Inflation Reduction Act of 2022
The latest compromise includes the previously agreed-upon health care provisions as well as a 15 percent corporate minimum tax, a proposal to close the carried interest tax loophole, and a provision for IRS enforcement. Additionally, it contains historic spending for climate, though it’s on a smaller scale than what the House envisioned last year.
All told, Democrats estimate the bill will bring in $739 billion in revenue and will invest $433 billion in spending. It also addresses Manchin’s goal of reducing the deficit and would do so by $300 billion or more. The bill’s investment in areas like clean energy, tax credits, and reducing health care costs is notable, though it’s much less ambitious than the provisions in the $1.75 trillion bill that the House passed last year.
Manchin made his announcement shortly after the CHIPS+ bill passed the Senate with bipartisan support. Previously, Senate Minority Leader Mitch McConnell had threatened to hold that bill hostage if Democrats pursued reconciliation. After CHIPS+ was approved, however, Democrats appeared freer to make progress and put forth this deal.
Here are the key provisions the legislation contains:
- Sets a new corporate minimum tax of 15 percent: Although corporations technically have a tax rate of 21 percent, many use loopholes to pay much less. This bill sets a hard 15 percent corporate minimum tax rate for companies that are bringing in more than $1 billion in profits each year, and is estimated to raise $313 billion in revenue as a result.
- IRS enforcement: The US loses an estimated $1 trillion a year due to fraudulent tax returns and dubious accounting. The legislation would invest millions into the IRS to help the agency track down these funds; that money, along with other spending on the agency, is expected to bring in $124 billion.
- Closes the carried interest tax loophole: The carried interest loophole enables money managers, like hedge fund managers, to pay a lower tax rate (20 percent) on compensation they get from overseeing and investing clients’ funds. This bill would close that loophole and require managers to pay a tax rate of up to 37 percent — the top rate for standard wages — on that compensation. If implemented, it could bring in $14 billion in revenue.
- Allows Medicare to negotiate prescription drug prices: Currently, Medicare is unable to negotiate prices for prescription drugs, so the cost is set by the manufacturer. Beginning in 2023, this bill enables Medicare to negotiate on 10 drugs in the first year. These negotiations could help reduce costs for people who use these drugs and are estimated to generate $288 billion in revenue because of the savings for Medicare.
- Extends ACA subsidies for three years: In the American Rescue Plan, lawmakers approved subsidies that would lower insurance premium costs for millions of people covered by the Affordable Care Act. Those subsidies are poised to sunset at end of this year, and this bill would extend them for three years through 2025. This provision is expected to cost $64 billion.
- Clean energy tax credits: There are big investments in a wide range of tax credits, including ones that aim to make homes more energy-efficient, incentivize clean energy vehicles purchases, and spur the use of clean sources of electricity and energy storage.
- Industry and manufacturing: The bill also has significant funding aimed at curbing existing pollution from manufacturing, and pushing for the establishment of more manufacturing facilities in the US that help to produce clean energy products like solar panels and electric cars.
- Environmental justice: Billions of dollars are set aside for grants dedicated specifically to places that have experienced outsize pollution, with the goal of helping these areas combat public health risks. Some of these funds are also allocated to tackle the negative impacts of transportation infrastructure, and other public projects, on communities.
What’s next for the bill
Democrats have long planned to use the budget reconciliation process in order to pass many of these provisions, since that process allows them to move policy forward with just 51 votes and no Republican support. This week, Schumer announced that the party intends to vote on this bill next week and pass it before leaving for recess on August 5.
Whether that timeline is realistic remains to be seen. The legislation has been submitted to the Senate parliamentarian, a procedural expert who will advise on whether the provisions address taxing and spending enough to qualify for budget reconciliation; it will take her some time to review the package. If the parliamentarian gives the green light, Democrats will be able to vote and pass the bill, which would then head over to the House. If she does not, the party will likely the alter the bill.
There are some other outstanding questions as well. Thus far, Sen. Kyrsten Sinema (D-AZ), who previously took issue with certain corporate tax increases in Build Back Better, has yet to say if she will support the Inflation Reduction Act. Similarly, it’s not yet clear what support in the House will look like, specifically from a contingent of moderate Democrats who had demanded the bill bring back the state and local tax deduction, also known as SALT.
Further complicating things is a surge in Covid-19 cases including among Senate Democrats, who will need every vote they have to pass any reconciliation bill. Thursday, Sen. Dick Durbin (D-IL) announced he tested positive for Covid-19, after Manchin announced the same earlier this week. Both will likely be back in time to participate in a vote if it happens next week, though any additional cases could add to the uncertainty.
All these factors mean the immediate passage of the bill could be in jeopardy unless lawmakers agree to stay in town for longer than originally planned.
Update, July 28, 2:30 pm: This story has been updated to include new information on the contents of the Inflation Reduction Act.