The controversial Inflation Reduction Act of 2022, aka the Reconciliation Bill after months of on-and-off negotiations between moderate Senate Democrats over a crucial piece of the Biden Administration’s agenda has passed the Senate. It is a significantly watered-down version of the original package proposed by the president. Senate Republicans staunchly opposed the package, arguing that it would do little to address decades-high inflation and would worsen the nation’s fiscal picture.
The initial measure, according to numbers released by Senate Democrats, would supposedly raise a total of $739 billion in revenue, and spend a total of $433 billion. It would reduce the budget deficit by roughly $300 billion over a decade.
The nonpartisan Congressional Budget Office found the package would reduce the deficit by about $102 billion over a decade. The CBO has estimated that elements of the deal that would increase tax enforcement at the Internal Revenue Service would raise an additional $204 billion in revenue over 10 years, but those effects aren’t included in its projections of how the package would affect the deficit.
Here's the breakdown: The package would spend roughly $369 billion on climate and energy programs, including tax credits for buying electric and hydrogen vehicles and making energy-efficient home improvements.
The spending bill would provide the IRS with $80 billion in new funding for enforcement an appropriation of more than six times the IRS’s current annual budget with a plan to more than double its tax agent headcount.
The bill would provide $20 billion to dispense to “green banks,” nonprofits that give homeowners, small businesses, and others low-cost financing to purchase energy-efficient products.
A preliminary analysis by Rhodium Group, shows the proposal could put the U.S. on track to reduce greenhouse-gas emissions by 31% to 44% below 2005 levels by 2030. That is an improvement from current policy that puts the country on track to reduce emissions by only 24% to 35%, the firm says.
The deal would dedicate $64 billion to extending for three years the Affordable Care Act subsidies that first kicked in under the 2021 American Rescue Plan.
The measure would also allow Medicare to negotiate the cost of some prescription drugs with pharmaceutical companies. It would also cap out-of-pocket drug costs for Medicare beneficiaries at $2,000 a year, beginning in 2025, and starting next year mandate that certain vaccines be free for Medicare enrollees. And it would impose a $35-a-month cap on insulin purchased through Medicare.
The proposal would implement a 15% corporate minimum tax, aimed at large companies that report significant profits but pay little or nothing in income taxes, such as Amazon Following criticism that the proposal would hit many manufacturers hard, Democrats revised the deal to preserve the tax benefits of accelerated depreciation. It applies to any kind of depreciable, tangible property, like factories and machines, according to Pat Brown, a co-leader of accounting firm PwC’s national tax services practice, and isn’t limited to a certain subset of property.
Senate Democrats claim the corporate tax won’t raise taxes directly on middle-class households on their individual returns, However, companies will likely pass on their cost burden to consumers and employees. How the bill will affect deficit reduction and consumer cost reduction in the long term is unclear, what is clear is more taxes.
Source: Wall Street Journal