10 Things to Know About Biden's Big Win

10 Things to Know About Biden's Big Win

Schumer celebrates after Sunday's 51-50 vote.
Reuters
By Yuval Rosenberg and Michael Rainey
Monday, August 8, 2022

What a weekend! Senate Democrats on Sunday passed their Inflation Reduction Act, setting up the House to pass the massive climate, health care and tax bill by the end of the week.

“To do small things with 50 votes is rough,” said Senate Majority Leader Chuck Schumer (D-NY). “To pass such a major piece of legislation with only 50 votes, an intransigent Republican minority, a caucus running from Bernie Sanders to Joe Manchin – wow.”

Here’s what you should know about Democrats’ wow moment.

What’s in Democrats’ Inflation Reduction Bill

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 (D-NY) 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 prices, extend Affordable Care Act 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 and 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 (D-WV), 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 a year.

The bill also provides $64 billion to extend subsidies 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 Jacob Sonenshine at Barron’s, 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 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 plans that didn’t make it: universal pre-K, money for child and elder care, an enhanced refundable child tax credit, free community college, housing construction, an expanded Earned Income Tax Credit, increases in tax rates for high-income households, and an end to the carried interest tax loophole.

10 Takeaways as Democrats Stand Poised to Pass Their Big Bill

It’s the nation’s first major climate bill: The $369 billion in climate programs are projected to help cut U.S. greenhouse gas pollution by about 40% below 2005 levels by the end of the decade. “That’s not enough to avert the worst impacts of a warming planet, but it would be a sizable down payment and the largest climate action ever taken by the United States,” Coral Davenport and Lisa Friedman write at The New York Times.

And it doesn’t include a carbon tax: The bill replaced a tax on pollution and instead opted “for the less-effective but more politically palatable approach of monetary incentives to industries and consumers to switch to clean energy,” Davenport and Friedman add. “Essentially, lawmakers replaced the sticks with carrots.” While economists and environmentalists have dreamed of a carbon tax, “the reality of American politics is that you give out a chunk of cash to stimulate new technology,” presidential historian Douglas Brinkley told the Times.

Red states will benefit from the climate money: “[W]hile the IRA was passed via a strictly blue budget reconciliation process, many of the climate-related dollars unleashed will be spent in red locales,” Liam Denning and Bobby Ghosh write at Bloomberg. “A data analysis conducted by Bloomberg Opinion and Enersection, a Houston-based data visualization firm, of where renewable energy technology gets deployed in the US shows the vast majority is in Republican-led congressional districts.”

It's also the biggest deficit reduction law in a long time: “To those concerned with the nation’s fiscal situation, it is a major victory,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “It is a model for how we can get multiple things done responsibly without punting on the payfors. … Senator Manchin especially deserves credit and praise for steering this legislation from a budget-busting monstrosity to this fiscally responsible and economically important package.”

And the biggest change to the health care system in years: The bill enables caps out-of-pocket costs for Medicare beneficiaries at $2,000 a year and enables Medicare to negotiate some drug prices, delivering a big defeat to Big Pharma. “This is not the sweeping drug pricing measure originally envisioned, but it is the biggest political loss the pharmaceutical industry has suffered,” said Larry Levitt, executive vice president for health policy at the Kaiser Family Foundation. And the foundation’s Tricia Neuman added that “it's hard to overstate the significance of the drug provisions heading to the House,” calling the bill the first major Medicare improvement in over a decade and adding that it “lowers costs for people who take pricey drugs, and insulin.”

But it’s not likely to do much to fight inflation near-term: Despite the bill’s title, it’s effects on inflation will likely be minimal. “The Congressional Budget Office estimates that the proposal will change the inflation rate by less than one tenth of a percent over the next two years, and that’s in either direction,” The Washington Post’s Editorial Board notesv. “Even economists more sanguine about the bill’s effects believe its impact will mostly be felt further into the future.”

The wealthy didn’t get slammed: “None of the billions of dollars in tax increases Democrats floated a year ago on high-earning Americans made it into the final version of the bill, including proposals to double the capital gains rate, increase taxes on inheritances and levy a surcharge on millionaires,” Bloomberg News notes. “Despite rhetoric from Democrats that they wanted the richest Americans to pay much more, there wasn’t consensus within the party to pass a bill that raises levies on the 1%.” Sen. Kyrsten Sinema (D-AZ) also helped private equity and hedge fund managers avoid a tax increase by pushing for the removal of a provision to address the carried interest loophole that allows those investors to pay a lower tax rate on some profits. Sinema and other Democrats also voted to lessen the hit from the new corporate minimum tax to businesses owned by private equity.

The IRS came out a winner: The tax agency will get a budget boost of $80 billion over 10 years to upgrade its technology and expand its audits and enforcement. The additional funding is projected to result in a net gain of $124 billion in revenue for the government.

Biden is on a roll: A string of successes has cheered Democrats and led Biden officials to once again harken back to Presidents Franklin D. Roosevelt and Lyndon B. Johnson, Peter Baker of The New York Times reports: “White House aides argue that the string of congressional victories — capped by the package of climate, health and tax provisions that finally cleared the Senate over the weekend — compares favorably to the two-year legislative record of most any other modern president, even perhaps F.D.R. and L.B.J.”

And Schumer pulled off what many thought was impossible: The Senate Majority Leader “was slammed last year for failing to unite his caucus behind Biden’s Build Back Better plan,” Bloomberg News reminds readers. But he got this deal done: “He managed to revive a slimmed version of the deal, navigate last-minute holdups and blindside Republicans hours after they gave up leverage by allowing a bipartisan semiconductor bill to pass.”

Liberal Washington Post columnist Paul Waldman argues that only Democrats could have done this: “Try to imagine the Republican Party as it’s currently constituted doing what Democrats just did,” he writes. “You can’t, because Republicans just don’t have it in them. … Say what you will about the superannuated Democratic leaders: At least they know how to pass a bill.”

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