It’s a deal that’s expected to raise more than $800 billion over the next decade for everything from tackling climate change to extending Obamacare. And there are plans to cut the deficit to boot.
The senses. Chuck Schumer (D-NY) and Joe Manchin (D-WV) surprised the world on July 27 by releasing a sweeping 725-page bill known as the Inflation Reduction Act (IRA) – resurrecting instantly a key item on the Democratic agenda to cut costs for the middle class.
The compromise comes after President Joe Biden’s sweeping “build back better” plan stalled in Congress and appeared dead for good. While the so-called IRA may be a far cry from some early Democratic ambitions — and there are still plenty of hurdles before it becomes law — the deal marks a potentially giant victory for Biden and Democrats within months. only before the midterm elections.
On Wednesday, Jared Bernstein, a member of the White House Council of Economic Advisers, said the deal offered “tremendous investment opportunities” for the US economy.
While Republicans are expected to align en masse against the proposal, the bill won support from former Treasury Secretary Larry Summers, who notably predicted that the Biden administration’s post-pandemic stimulus efforts would fuel inflation.
“This bill fights inflation and also has a lot of collateral benefits,” said Summers, who is said to have helped shape the deal.
Here’s what it will do.
$385 billion for climate change and energy
The centerpiece of the bill is a giant allowance for climate change and energy efforts. Schumer has repeatedly noted that this bill “will be the biggest climate change action ever passed by Congress.”
If passed, it will spread the money across the green economy from $9 billion to a $20 billion home retrofit program to make more electric vehicles. Automakers like GM (GM), Tesla (TSLA) and Toyota (TM) stand to benefit from the money as well as the expansion of a $7,500 electric vehicle tax credit included in the deal .
About $385 billion in total will fund clean manufacturing, agricultural efforts and other sectors.
Proponents of the package say it will reduce US carbon emissions by around 40% by 2030. The news has climate activists who had largely given up chances for action from Washington DC this year, delighted with the turnaround. As an example, Evergreen Action executive director Jamal Raad said in a statement that the bill could “mitigate the worst impacts of climate change, reduce energy costs for working families and save countless lives”.
The bill also contains provisions that would have a broader impact on the energy industry, including new rules regarding sales of federal lands for oil drilling and a fund to permanently expand the Black Lung Disability Trust. fund. This will help many former coal miners in Manchin’s home state of West Virginia.
Changes to the healthcare system, which will bring money to the government
The bill also makes significant changes to the health care system.
A key provision will allow Medicare to negotiate prescription drug prices. Current law prohibits Medicare from intervening in talks between drugmakers and health plan sponsors. The new rules would give the government leverage to bring prices down and save consumers – and the government – billions.
The bill would also add an inflation cap on drug prices to stabilize monthly costs and cap reimbursable drug costs through new reimbursement rules. In total, budget experts expect the combined changes to net the US Treasury $320 billion over the next decade.
The IRA also extends subsidies for health insurance costs that began in the Affordable Care Act 2010 for another three years. This provision comes with a price tag of approximately $64 billion.
The grants had previously been extended in the US bailout and are currently due to expire this fall. If the bill doesn’t pass, millions of Americans could see price increases in the fall.
More than 300 billion dollars for the deficit
And the icing on the cake for supporters of the package, the bill will cut the deficit by about $300 billion over the next decade through a series of “payouts” (more on that below).
Summers cited deficit reduction as the main reason he expects the bill to reduce inflation.
“It reduces demand, because it will reduce the budget deficit over time, because, unlike what we did a year and a half ago [in the American Rescue Plan]we generate more revenue than we increase our expenses,” Summers recently noted on CNN.
Senator Manchin made deficit reduction a must-have part of the bill to win his support and noted “it’s long overdue for America to start paying down our $30 trillion national debt” as he announced his support. to agreement.
A question was raised about the bill’s overall inflation-fighting powers on Friday when Penn Wharton’s budget model, which Manchin is known to follow closely, released its first estimate of the bill and found little impact on inflation. This would “very slightly increase inflation until 2024 and decrease inflation thereafter”, according to the estimate.
New taxes to pay
To pay for it all, in addition to health care savings, the bill makes three changes to the tax code.
There is a new minimum corporate tax that would apply to corporations that have made more than $1 billion in book profits in recent years. This idea is expected to bring in $313 billion.
The deal will also set aside billions to help the IRS chase down tax cheats. Experts predict a significant return on investment: the 80 billion dollars added to the IRS budget should bring in 203 billion dollars in taxes.
Finally, the deal would remove the so-called “deferred interest loophole,” which wealthy fund managers can use to pay less tax on their capital gains, potentially adding another $14 billion to US coffers.
On Friday, the focused interest effort found an unlikely ally in hedge fund billionaire Bill Ackman. He tweeted that the current rules are “a stain on the tax code”, adding that it’s “embarrassing and should end now” for good measure.
Friday on Yahoo Finance, investor Kevin O’Leary claimed that the new minimum corporate tax could make the United States less competitive. “It’s not a good move, because you want our economy to stay competitive,” he said.
But from the perspective of Democrats in Washington, the overall tax effort “will begin to restore fairness to the tax code,” as Biden said on Tuesday.
He and others note that the minimum tax would target America’s largest corporations, including the 55 Fortune 500 members who paid no federal income tax in 2020.
Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.
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