Though their path to success was littered with false starts, abandoned proposals and last-minute compromises, Democrats finally passed the $740 billion Inflation Reduction Act after a marathon legislative session this past weekend, with Vice President Kamala Harris providing the tie-breaking vote Sunday in an evenly divided Senate.
“After more than a year of hard work, the Senate is making history,” Majority Leader Chuck Schumer said shortly before the final vote, in which all Republicans voted no. “This bill will kickstart the era of affordable clean energy in America, it’s a game changer, it’s a turning point and it’s been a long time coming.”
The largest climate bill in history, the sweeping legislative package will direct about $370 billion in spending and tax credits toward combating global warming and promoting green energy. It will also empower Medicare to negotiate some drug care prices, extend health care subsidies and boost the capabilities of the IRS. Revenues will increase thanks to a new 15% minimum income tax on large corporations and a 1% tax on corporate stock buybacks – moves that will help generate enough revenue to reduce the budget deficit by about $300 billion over the next decade, and as much as $1.9 trillion over 20 years.
The bill’s effect on inflation, however, is expected to be modest.
Here are some key details from the 755-page bill:
Climate: Using federal tax credits to channel private spending and investment, the bill will help the U.S. cut emissions by about 40% by the end of 2030, relative to 2005 levels – close to President Joe Biden’s goal of a 50% reduction. (As some climate activists have noted, however, the overall effect of the bill – the largest climate effort in U.S. history – on global temperature will be extremely small.) Additional tax credits will encourage the installation of heat pumps, solar panels, electric cooktops and home insulation.
The bill creates a new $27 billion green energy bank that will focus on funding new energy technologies. The existing $7,500 tax credit for buyers of electric cars ($4,000 for used) gets an extension, though it includes a controversial requirement about the sourcing of battery materials that carmakers are saying could severely limit the use of the credit. And there are billions more for air pollution monitoring in low-income communities, block grants for environmental justice
The bill also includes some benefits for existing energy companies that extract and trade in fossil fuels – part of a compromise that helped win the support of Sen. Joe Manchin, the former coal executive from West Virginia who also succeeded in winning permanent funding for the Black Lung Disability Trust Fund.
Health care: For the first time, Medicare will be empowered to negotiate the price of some drugs, a move that is expected to save the federal government about $100 billion over 10 years. Though unprecedented and a significant political loss for the powerful pharmaceutical industry, the new rules are limited, not taking effect until 2026 and initially applying to only 10 drugs.
The bill also provides $64 billion to extend subsidies provided to about 13 million people who purchase their health insurance through the state and federal exchanges created by the Affordable Care Act.
Insulin prices will also be affected by the bill. Diabetics in Medicare will now pay no more than $35 per month on the life-saving drug. Those with private insurance, however, will not be affected, after Republicans stripped a measure from the bill that would have extended the $35 cap to all insured people.
Taxes: The IRS will receive its largest increase in funding ever, nearly $80 billion over 10 years, with the money being used to hire more workers and bolster the tax agency’s ability to track down wealth tax cheats.
On the revenue side, the bill imposes a new 15% minimum tax on companies with more than $1 billion in revenue. This new tax is projected to raise about 40% of all the revenues in the bill. According to Barron’s Jacob Sonenshine, the tax will likely affect numerous well-known corporations, including Tesla, Amazon, Salesforce and Ford.
In addition, there will be a new 1% tax on corporate buybacks, intended to raise revenues while also encouraging companies to invest more in their companies rather than taking steps to raise their share prices. The new tax, projected to raise $74 billion over 10 years, wasn’t part of the Democrats’ original proposal, but was added to make up for the revenues lost when a proposed tightening of the carried interest tax was abandoned – a move necessitated by Sen. Kyrsten Sinema’s (D-AZ) opposition to raising taxes on private equity investors.
What’s not in the bill: While the legislation includes major parts of Democrats’ ambitious energy plan and some significant changes in Medicare and the tax code, much of what President Joe Biden had hoped to accomplish in his first two years was whittled away as senators adjusted the plan to win the support of reluctant lawmakers within their own party, Manchin and Sinema most notably.
NBC News’s Sahil Kapur has a partial list of the programs that didn’t make it: universal pre-K, money for child and elder care, an enhanced refundable child tax credit, free community college, investment in housing construction, an expanded Earned Income Tax Credit, increases in tax rates for high-income households, and an end to the carried interest tax.