ItThe Inflation Reduction Act, a historic package that includes tax, climate and health care, was passed by the Senate in a party-line vote.
Legislators advanced the bill after an all-night session in which they voted on dozens of proposed amendments in a process known as a “vote-o-rama.” In the evenly split Senate, all 50 members that caucus with Democrats backed the package, allowing Vice President Kamala Harris to serve as the tie-breaker.
The bill came about after months of intense negotiations, much of it focused on garnering the support of two Democratic centrists—Senators Joe Manchin of West Virginia and Kyrsten Sinema of Arizona.
Now, the bill is headed to the House for a vote. A result can be expected Friday. The bill will now be sent to the Senate for a vote. President Joe Biden has indicated that he will sign it if it passes.
Here’s what you need to know about the Inflation Reduction Act.
What’s the Inflation Reduction Act?
The bill would be the country’s biggest climate investment in U.S. history, and also deliver health care subsidies for millions, and enact a 15% minimum tax on corporations that make more than $1 billion in profits.
Although the version the Senate passed on Sunday is significantly smaller than President Biden’s original promises for the package—which was earlier known as the Build Back Better Act—party leaders maintain that this legislation will still address voters’ main concerns.
Reducing climate change proved to be a top priority as the bill invests more than $360 billion in energy and climate change programs over the next decade, including cash incentives for electric vehicle consumers and tax breaks to speed up the country’s transition to renewable energy sources. Senate Democrats believe the bill will decrease carbon emissions by 40% by 2030. That’s 10% lower than Biden initially promised at last year’s Leaders Summit on Climate.
An additional $60 billion will be given to cities that are disproportionately affected by climate change, and millions more as “climate resiliency funding” for Native American communities.
This bill would allow Medicare to negotiate with drugmakers the cost of medication. It also ensures that prescriptions are covered at a maximum $2,000 per year. Congress also sought to set a $35 cap on the cost of insulin for uninsured persons. This provision was dropped by Senate Republicans during Sunday’s amendment process. However, the bill still contains the same Medicare insulin user cap.
The bill’s costs would be covered in part by a new 15% minimum tax rate applied to corporations with profits of $1 billion or more. It would also make companies pay a 1% tax when they buy back their own stock and significantly beef up the IRS’s tax evasion enforcement. A measure that would have minimized the carried interest tax—which allows hedge fund managers to have their profits taxed at a lower rate of 20% as opposed to the individual income tax rate of 37% for the highest bracket of earners—was cut to ensure Sinema’s support.
What a journey!
President Biden’s first iteration of this bill, the $1.75 trillion Build Back Better, was introduced last year, and initially passed the House in November. The evenly divided Senate required Democrats to ensure that every member of the caucus was represented. The bill died out on December 19, after Manchin told Fox News that he would vote “no” amid concerns that it would increase inflation and national debt.
Inflation Reduction Act is missing initiatives from Build back Better, which are specifically designed to benefit parents and their families. These include federal paid family leave and medical leave as well as funding for universal preK (for nearly 6,000,000 children), subsidized care for the poor, and expansion of the child tax credit. David Mitchell, director of Washington Center for Equitable Growth’s government and international relations, says investment in social infrastructure such as childcare would have increased labor supply and contributed to reducing economic pressures. “I think that was a major weakness not tackling those kinds of care infrastructure problems that we know the country is toiling under,” Mitchell says. “Universal pre-K, paid leave, the child tax credit, those types of investments would have both increased growth potential of the economy by allowing, you know, mostly women who do so much with childcare in the US to enter the workforce.”
Inflation Reduction Act included programs that reflected Manchin’s willingness to support them. The West Virginia Republican shocked Washington by declaring that, after suggesting that negotiations were over earlier in the year, he had reached a settlement with Senate Majority Leader Chuck Schumer on a $433 million climate and health bill.
The bill was opposed unanimously by Republicans on Sunday. Ted Cruz, Republican from Texas Senator Ted Cruz called it a “massive power grab,” claiming it would reduce manufacturing jobs and increase gas prices.
Some liberals expressed their discontent with the final bill. Vermont Independent Senator Bernie Sanders has voiced his disapproval at the concessions made in order to convince Manchin to sign. Sanders attempted to pass a number of amendments on Sunday. One that would have provided hearing, vision and dental benefits for Medicare beneficiaries. He was supported by only two senators from Georgia: the two Democrats of Georgia.
“As currently written, this is an extremely modest bill that does virtually nothing to address the enormous crises facing the working families of our country.” Sanders said in a public statement. “It falls far short of what the American people want, what they need, and what they are begging us to do.”
The House is expected to return on Aug. 12 to send the bill to Biden’s desk.
Can the bill reduce inflation?
The bill’s substance and its effect on inflation have been the subject of much discussion.
During Sunday’s vote-a-rama, Sanders cited the Congressional Budget Office’s economic analysis, which predicts the Inflation Reduction Act would have a “negligible effect on inflation.” That same analysis estimates that the bill would decrease the deficit by $102 billion over the next nine years.
Mitchell says that despite disagreement on the bill’s immediate effect on inflation, there’s less debate over the long-term impact. “For the most part, economists agree that it will help relieve some of the price pressure that Americans are facing,” Mitchell says.
Claudia Sahm is an ex-economist at the Federal Reserve. She predicts short-term effects on inflation will be modest, but the bill’s climate provisions will be especially beneficial for the future. “An increase in energy efficiency and use of renewable energy would better protect us from spikes in global oil prices like the one causing hardship now,” Sahm told TIME in an email statement. “The legislation is a big step forward in Congress recognizing that it too has a responsibility to fight inflation. ”
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