October 3, 2022

Not as strong as the proposal once envisioned by President Joe Biden to rebuild America’s public infrastructure and family support systems, Democrats’ compromise on health care, climate change and deficit-reduction strategies remains a big task.

The $740 billion package — which the Senate passed on Sunday and headed to the House of Representatives — is packed with party priorities. These include capping prescription drug costs at $2,000 out of pocket for seniors, helping Americans pay for private health insurance and what Democrats call the largest investment in history to combat climate change, about $375 billion over a decade.

Nearly half of the money raised, $300 billion, will go toward paying off the federal deficit.

All of this is paid in large part through new corporate taxes, including a minimum 15% tax on large corporations to ensure they are never skipped to pay any taxes.

Called the “Inflation Reduction Act of 2022,” it’s not at all clear that the 755-page bill will significantly ease inflationary pressures, although millions of Americans are expected to see some relief in health care and other costs.

Votes fell strictly along partisan lines in the Senate 50-50, with all Democrats in favour, all Republicans opposed, and Vice President Kamala Harris submitted a vote equalizing to pass 51-50. The House of Representatives is expected to vote on Friday.

A look at what’s inside and outside the final package:

Lower prescription drug costs

By launching a long-awaited goal, the bill would allow Medicare to negotiate prescription drug prices with drug companies, saving the federal government about $288 billion during the ten-year budget window.

This new revenue will be traced back to lower costs for seniors on medications, including $2,000 out of pocket for seniors who buy prescriptions at pharmacies.

The money will also be used to provide free vaccines to seniors, who are now among the few who are not guaranteed free access, according to a briefing document.

Seniors will also set insulin prices at $35 a dose. There was a provision to extend the price cap on insulin for Americans with private health insurance that didn’t keep up with Senate budget rules and Republicans stripped it from the final bill.

Help with paying health insurance costs

The bill would extend benefits during the COVID-19 pandemic to help some Americans who purchase health insurance themselves.

Under pre-pandemic relief, the additional assistance was due to end this year. But the bill would allow assistance to continue for another three years, lowering premiums for people who buy their health care policies.

‘The largest single investment in climate change in US history’

The bill would invest nearly $375 billion over the decade in strategies to combat climate change, including investments in renewable energy production and tax cuts for consumers to buy new or used electric vehicles.

Broken down to include $60 billion in tax credits for clean energy manufacturing and $30 billion in production tax credits for wind and solar, they are seen as ways to boost and support industries that can help reduce the country’s dependence on fossil fuels. The bill also gives tax credits for nuclear power and carbon capture technology that oil companies like ExxonMobil have invested millions of dollars to pay.

The bill would impose new fees on excess methane emissions from oil and gas drilling while giving fossil fuel companies access to more leases on federal land and water.

A belated addition paid by Senator Kirsten Senema, D-Arizona, and other Democrats in Arizona, Nevada and Colorado would allocate $4 billion to combat massive droughts in the West, including conservation efforts in the Colorado River Basin, which nearly 40 million Americans rely on for drinking water.

For consumers, there are tax credits as incentives to go green. The first is a 10-year consumer tax credit for renewable energy investments in wind and solar power. There are tax credits for buying electric cars, including a $4,000 tax credit for the purchase of used electric cars and $7,500 for new cars.

Overall, Democrats believe the strategy could put the country on a path to cutting greenhouse gas emissions by 40% by 2030, and “would represent the single largest climate investment in US history, by far.”

How do you pay for all this?

The bill’s biggest source of revenue is a new 15% minimum tax on companies that generate more than $1 billion in annual profits.

It’s a way to clamp down on about 200 US companies that avoid paying the standard 21% corporate tax rate, including some that pay no tax at all.

The new minimum corporate tax will start after the 2022 tax year and raise about $258 billion over the decade.

Revenue was supposed to be $313 billion, but Sinema insisted on one change to the company’s 15% minimum, allowing deductions for depreciation used by manufacturing industries. This reduces about $55 billion in total revenue.

To beat Sinema, Democrats dropped plans to plug a tax loophole that wealthy Americans have long enjoyed — the so-called carry interest, which under current law taxes wealthy hedge fund managers and others at a rate of 20%.

The left has sought for years to increase the rate of the carry-over tax, which rose to 37% in the original bill, which is more in line with higher-income earners. Sinema did not allow it.

Maintaining the tax credit for the wealthy deprives the party of the $14 billion in revenue they were counting on to help pay for the package.

Instead, with a nod to Cinema, Democrats will impose a 1% selective tax on stock buybacks, raising about $74 billion over the decade.

Funds are also raised by strengthening the IRS to prosecute tax fraud. The bill proposes an investment of $80 billion in taxpayer services, enforcement and modernization, which is expected to generate $203 billion in new revenue — a net gain of $124 billion over the decade.

The bill adheres to Biden’s original pledge not to raise taxes on families or businesses that generate less than $400,000 a year.

Lower drug prices for seniors are being paid for by savings from Medicare negotiations with drug companies.

Additional money to pay off defects

With about $740 billion in new revenue and about $440 billion in new investment, the bill promises to put the difference of about $300 billion in deficit reduction.

Federal deficits soared during the COVID-19 pandemic when federal spending rose and tax revenue fell as the country’s economy fluctuated through shutdowns, closed offices, and other massive changes.

The nation has seen a rise and fall in deficits in recent years. But the overall federal budget is on an unsustainable path, according to the Congressional Budget Office, which released a new report this week on the long-term outlook.

What is left behind?

This latest package suddenly appeared at the end of July after 18 months of start-and-stop negotiations, leaving behind many of Biden’s most ambitious goals.

Senate Majority Leader Chuck Schumer, Democrat of New York, struck a deal with Senator Joe Manchin to revive Biden’s package, reducing it to bring the West Virginia Democrat back to the negotiating table. Next, they painted Sinema, the remainder of the rejectionist party, with additional changes.

The package remains solid, by typical standards, but nowhere near the comprehensive Build Back Better program Biden once envisioned.

As Congress passed the bipartisan $1 trillion infrastructure bill for highways, broadband and other investments that Biden signed into law last year, other key priorities for the president and the party have slipped.

Among them is the continuation of the $300 monthly children’s tax credit that has been sending money directly to families during the pandemic and is believed to have reduced widespread child poverty.

Also gone, for now, are plans to create a free community college and pre-kindergarten, as well as the nation’s first paid family leave program that would have provided up to $4,000 a month for births, deaths and other pivotal needs.


Associated Press writer Matthew Daly contributed to this report.

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