Inflation Reduction Act One Step Closer to Enactment

The Inflation Reduction Act, a highly pared-down version of President Biden’s signature Build Back Better plan, is one step away from enactment as the House prepares to take up the Senate-passed bill on Friday, August 12. While the $700 billion-plus climate, tax and health care package is a significant victory for the White House, it’s a far cry from the $3.5 trillion envisioned by Democrats over a year ago. Capping off a week that was tumultuous at times, the bill passed 51-50 on Sunday afternoon following an all-night vote-a-rama on amendments. Even though the House already began their August recess, Speaker Pelosi called members back once it became clear the Senate would advance the bill. Here are a few highlights of what the Inflation Reduction Act provides:

Climate

• $260 billion in clean-energy tax credits to incentivize solar, wind, hydropower and other sources of renewable energy
• $80 billion in new rebates for electric vehicles, green energy at home and other home improvements
• $1.5 billion in rewards for oil and gas companies that slash their emission of methane (and penalizing those that don’t)

Health

• Allows Medicare to negotiate drug prices and prevent future administrations from refusing to do so
• Places a cap on seniors’ drug costs under Medicare to $2,000 per year
• Impose a $35 monthly cap on the cost of insulin for patients enrolled in Medicare
• Extends certain Affordable Care Act tax credits for low and middle-income Americans with plans on the insurance exchanges

Tax

• $80 billion investment in the IRS to increase compliance and enforcement (estimated to bring in over $100 billion in revenue for the federal government)
• A fifteen percent corporate minimum tax applied to all U.S. corporations that earn more than $1 billion per year in profits (tax is expected to apply to tax-exempt municipal securities, but it remains undetermined how that might impact the market)
• A one percent tax on stock buybacks

It is worth noting the provisions not included in the Senate-passed bill even though they were potential deal-breakers. In particular, repeal of the state and local tax deduction (SALT) cap included in the 2017 Tax Cuts and Jobs Act was left out of the final package. Repealing the cap is a top priority for several in the Democratic caucus, but exclusion will likely not impede the bill’s passage in the House. Earlier in the week, several northeast House Democrats indicated they would vote in favor of the bill despite early threats to withhold support if a SALT cap repeal was not part of any Build Back Better package.