Not as robust as the proposal President Joe Biden once envisioned to rebuild America’s public infrastructure and family support systems, the Democrats’ compromise of health care, climate change and deficit-reduction strategies is still a substantial undertaking.
The estimated $740 billion package — passed Sunday by the Senate and heading to the House — is full of party priorities. Those include capping prescription drug costs at $2,000 out of pocket for seniors, helping Americans pay for private health insurance and what Democrats are calling the most substantial investment in history to fight climate change, some $375 billion over the decade.
Almost half the money raised, $300 billion, will go toward paying down federal deficits.
It’s all paid for largely with new corporate taxes, including a 15 percent minimum tax on big corporations to ensure they don’t skip out on paying any taxes at all, as well as projected federal savings from lower Medicare drug costs.
Called the “Inflation Reduction Act of 2022,” it’s not at all clear the 755-page bill will substantially ease inflationary pressures, though millions of Americans are expected to see some relief in health care and other costs.
Votes fell strictly along party lines in the 50-50 Senate, with all Democrats in favor, all Republicans opposed, and Vice President Kamala Harris providing a tie-breaking vote for 51-50 passage. The House is expected to vote by Friday.
New Minimum Tax for $1B Profits
The biggest revenue-raiser in the bill is a new 15 percent minimum tax on corporations that earn more than $1 billion in annual profits.
It’s a way to clamp down on some 200 U.S. companies that avoid paying the standard 21 percent corporate tax rate, including some that end up paying no taxes at all.
The new corporate minimum tax would kick in after the 2022 tax year and raise more than $258 billion over the decade.
The revenue would have been higher, but Sen. Kirsten Sinema, D-AZ, insisted on one change to the 15 percent corporate minimum, allowing a depreciation deduction used by manufacturing industries. That shaves about $55 billion off the total revenue.
Carried Interest Changes Removed
To win over Sinema, Democrats dropped plans to close a tax loophole long enjoyed by wealthier Americans — so-called carried interest, which under current law taxes wealthy hedge fund managers and others at a 20 percent rate.
The left has for years sought to boost the carried interest tax rate, hiked to 37 percent in the original bill, more in line with upper-income earners. Sinema wouldn’t allow it.
Keeping the tax break for the wealthy deprives the party of $14 billion in revenue they were counting on to help pay for the package.
In its place, Democrats, with Sinema’s nod, will impose a 1 percent excise tax on stock buybacks, raising some $74 billion over the decade.
IRS Gets More Agents
Money is also raised by boosting the IRS to go after tax cheats. The bill proposes an $80 billion investment in taxpayer services, enforcement and modernization, which is projected to raise $203 billion in new revenue — a net gain of $124 billion over the decade.
The bill sticks with Biden’s original pledge not to raise taxes on families or businesses making less than $400,000 a year.
The lower drug prices for seniors are paid for with savings from Medicare’s negotiations with the drug companies.
With some $740 billion in new revenue and around $440 billion in new investments, the bill promises to put the difference of about $300 billion toward deficit reduction.
Federal deficits spiked during the COVID-19 pandemic when federal spending soared and tax revenues fell as the nation’s economy churned through shutdowns, closed offices and other massive changes.
The nation has seen deficits rise and fall in recent years. But overall federal budgeting is on an unsustainable path, according to the Congressional Budget Office, which put out a new report this week on long-term projections.
What’s Left Behind?
This latest package emerged suddenly at the end of July after 18 months of start-stop negotiations leaves behind many of Biden’s more ambitious goals.
Senate Majority Leader Chuck Schumer, D-NY, struck a deal with Sen. Joe Manchin to revive Biden’s package, slimming it down to bring the West Virginia Democrat back to the negotiating table. Next, they drew Sinema, the remaining party holdout, with additional changes.
The package remains robust, by typical standards, but nowhere near the sweeping Build Back Better program Biden once envisioned.
While Congress did pass a $1 trillion bipartisan infrastructure bill for highways, broadband and other investments that Biden signed into law last year, the president’s and the party’s other key priorities have slipped away.
Among them is a continuation of a $300 monthly child tax credit that was sending money directly to families during the pandemic and is believed to have widely reduced child poverty.
Also gone, for now, are plans for free pre-kindergarten and community college, 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 staff writer Matthew Daly contributed to this report.