Yes, it’s true. Despite everyone thinking Congress can’t get anything done, another major package has been passed- and signed into law by President Biden.
This package is misnamed the Inflation Reduction Act. Why do I say it’s misnamed? Because, if the series of provisions in this bill reduce inflationary pressures, they surely won’t happen some three to five years in the future. Certainly, not right away.
It is clear that the net advantage of the package is that some $ 804 billion in new taxes will be raised- of which $ 300 billion can be applied to reduce our federal deficit. (The rest of the money raised will be used for the provisions in the bill- things like $ 369 billion to improve our climate and energy programs and $ 64 billion to maintain those higher health care subsidies the were due to expire at the end of this year, which means millions of folks will find the Affordable Care Act to be both affordable and a great insurance program. Yes, this is a pay-for bill!)
There are two key provisions that are NOT part of this package.
The first one removed from the legislation should have rectified an injustice that has been around for some 15 years. That is the “carried interest” provision- a clause that lets hedge funds and vulture capitalist groups claim that income generated from reorganizing companies that were purchased (and routinely left with highly leveraged balance sheets, since funds are stripped from the treasuries of the firms that find their way to the hedge fund/vulture capital investors) is not considered income, but long term capital gains. This lowers the tax rate on said profits from some 39% to 15 or 20%. This provision was removed from the bill to obtain the approval of Kirsten Sinema, the Senator from Arizona, who was needed to provide the 50th vote to get the overall package passed. (Yes, Ms. Sinema is well funded by the hedge fund/vulture capitalist lobbying groups.) [I do admit that the provision Ms. Sinema used to replace this provision will increase government tax collections, though.)
The second provision removed was a cap on the cost of insulin for most patients. This provision was considered to be “off limits” to a reconciliation packaged by the Senate Parliamentarian. Which let the GOP lawmakers to strip out the cap for all but Medicare patients. This means that, after paying for rent and food, many Americans (1 in 5 folks (14% of all 7 million insulin users) whose private insurance covers the cost of insulin) will be paying some 40% of their remaining funds to pay the ridiculously sky-high prices that big Pharma has been charging for insulin. (The final vote on the insulin cap was 57 to 43; if this weren’t a reconciliation program, the vote needed to have 60 positive votes. Only 7 Republicans joined in with the Democrats, so the provision was erased from the package.)
OK, so now let’s look more carefully at the provisions that ARE in the bill.
This package is the largest climate control bill the US has ever passed. It is expected that it will provide for a 40% reduction in carbon emissions by 2030. That is not quite the amount that President Biden had proposed (which was 50% reduction in carbon emissions by 2030), but it does go a long way to achieving that goal. Part of these provisions expands our energy independence and part exhorts private industry to latch on to more renewable energy (solar, wind, hydropower, among others) sources, as well to homeowners to adopt a slew of energy reduction initiatives. The renewable energy tax credit provision totals some $ 260 billion in costs.
There are also provisions to reward petrochemical firms that reduce their methane emissions- and penalize those who fail to do so. There are also $ 20 million in agricultural subsidies for farmers to reduce their emissions, plus another $ 6 billion for chemical/steel/cement facilities to reduce their emissions. That’s topped off with a $ 3 billion provision to help port facilities reduce their air pollution emissions. Not a bad start in cleaning up our environment.
The bill also incentivizes Americans to purchase electric vehicles (EV), with a tax credit of some $ 7500 per vehicle- for couples who earn $ 300K a year or less (individual income maxima are $ 150K). In addition, a brand new credit of $ 4000 will be available to those who purchase a used EV. Note, however, that these provisions apply to vehicles of primarily domestic manufacture.
When it comes to revenue enhancement, the biggest provision is the one that folks like me have been advocating for nearly a decade- a universal (around the world) minimum 15% income tax for all US taxed entities that earn $ 1 billion or more. Yes, I know the TCJA (Tax Cut and Jobs Act) that began in 2018 set a 21% corporate tax rate- but the bigger US companies have found ways to shelter income to pay virtually no income tax, despite the claims of the TCJA. That is no longer possible.
Another tax provision- one that has been needed for more than a decade as well- is to invest some $ 80 billion in the IRS to remove the backlog, staff up the office to handle phone and tax demands, and restart the true auditing of taxes for those who earn $ 400K or more. (When the GOP slashed the IRS budget and personnel by 20% between 2010 and 2020, there were insufficient staff to deal with these folks, to ensure that tax cheating doesn’t become the norm. You should realize that this slashing of the IRS meant that the ratio between IRS agents and US taxpayers dropped 45% over that time period!) Going after those who made $ 100K a less with “paper audits” became the norm- because most of the folks in those brackets lack the wherewithal to contest the IRS decisions. These new efforts will not only help many taxpayers get the help they need from the IRS, but the IRS should be able to collect an addition $ 1.4 trillion in taxes from cheaters. (NOTE: The new staff and focus will be on those earning $400K a year or more. That is the income strata that the IRS stopped auditing (down to 4%), because they had the means to contest and delay any decisions- and the IRS needed its staff to be able to move on quickly, so they dropped those audits.)
The bill also provides for a long-sought provision by the Democrats. The ability of Medicare to negotiate drug prices directly with pharmaceutical firms. The insulin cost cap was one such provision, but there are a slew of other drugs that will be addressed by this new law.
We’ll spend the bulk of the next ten days going over more provisions of this major tax package (which is almost 750 pages long).
