Manchin and Schumer Agree on 15% Corporate Minimum Tax, Climate, and Healthcare

July 28, 2022

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4:39 am

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57 comments

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Economics

Manchin and Schumer agree to a deal, some details nebulous. Image from Tweet below.

Inflation Reduction Act of 2022

Please note Manchin, Schumer Agree on $430 Billion Tax, Drugs, Energy Bill.

The bill includes $430 billion in new spending on energy and health insurance investments, and more than pays for itself by raising minimum taxes for big companies and enforcing existing tax laws, Schumer and Manchin said in a statement.

The measure is substantially smaller than the multi-trillion-dollar spending bill Democrats had envisioned last year.

Manchin and Schumer in a statement said the bill would reduce the nation’s deficit by about $300 billion, lower carbon emissions by about 40% by the year 2030 and allow the government’s Medicare health plan to negotiate prescription drug prices. But they did not provide specifics.

Republicans were quick to criticize the move. “I can’t believe that Senator Manchin is agreeing to a massive tax increase in the name of climate change when our economy is in a recession,” Senator Lindsey Graham said.

McConnell also criticized the bill, saying it would “kill many thousands of American jobs.”

A one-page summary shows the bill will generate $739 billion in revenue from a 15% corporate minimum tax, prescription drug savings, and added IRS enforcement.

Major Reversal

Breaking News: In a reversal, Senator Joe Manchin said he had struck a deal with Democrats on a climate and tax package. He argued that it would reduce inflation, a concern he had cited in rejecting it just weeks ago. https://t.co/937o4BGUkE

— The New York Times (@nytimes) July 27, 2022

Carried Interest Loophole Closed

The Manchin-Schumer bill closes the carried interest loophole. Hedge funds and private equity gonna lose their minds.

Big energy money here pic.twitter.com/eE04R1rGTW

— Ryan Grim (@ryangrim) July 27, 2022

No Energy or Medicare Specifics

Among policies Manchin talks about in announcing deal w/ Schumer (we don’t have text of deal):

– Prescription drug reform
– 15% minimum tax on corporations
– $ for renewables, hydrogen, nuclear, fossil fuels, energy storage

Says a SEPARATE deal to do permitting reform in fall

— Jeff Stein (@JStein_WaPo) July 27, 2022

Ominous Name

It’s hard to comment, especially on the energy and Medicare aspects, due to lack of specifics. However, the name “Inflation Reduction Act of 2022” is ominous. Congressional bills often do the opposite of what their title suggests.

A 15% minimum corporate tax will be recessionary, especially profit recessionary, unless corporations respond by raising prices.

The guaranteed inflationary aspect is the pledge to lower carbon emissions by about 40% by the year 2030.

Color me extremely skeptical about the net impact impact of this bill reducing inflation.

Given that Democrats wanted to spend several trillion on Build Back Better, perhaps this result may be considered a victory.

This post originated at MishTalk.Com.

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57 Comments

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Lisa_Hooker

1 year ago

I am again compelled to point out to those that tend to forget.

A corporation is a legal fiction.

All money a corporation pays in taxes it must first take from its customers/investors – or borrow.

Money not spent on Medicare drugs is an illusion promoted by politicians.

Try deducting money you “saved” by not spending from your personal taxes owed.

And needless to say, enforcing tax law simply takes more money from you – it’s not a “saving.”

$430 billion dollars – and recall that there are only 158,111,000 Americans bringing home a paycheck.

That’s an average of $2719.61 per paycheck, an additional negative cash flow for taxpayers every month.

Then there’s the costs of high inflation in food and energy.

kansasdude

1 year ago

So a 40% reduction in carbon in less than 8 years. Crash the economy so no one can afford to go anywhere or buy anything? Like Summers idea on high unemployment?

Even if that isnt the plan I dont see anything but disaster coming from this. Everyday im in disbelief wondering how these morons come up with this crap. It’s getting to the point id almost rather take my chances with ww3.

Lisa_Hooker

1 year ago

Reply to kansasdude

The morons come up with this because they receive a minimum of $174,000/year rain or shine. They are not even paid for attendance let alone performance, they just get the money. Some do better. Then there’s the expense accounts they have.

Then there’s the workday: The House was scheduled to meet for 160 days in 2021 and 112 days in 2022. The rest of us with a two week vacation and holidays have about 245 workdays.

ed_retired_acttuary

1 year ago

I do not believe that either a 15% minimum big company corporate tax, or reclassifying hedge fund carried interest as ordinary income rather than capital gains will have more than immaterial inflationary consequences. It is well known that many companies lower their effective tax rate by shifting paper profits to tax havens, or similar accounting tricks. Reducing their effectiveness will have virtually no impact on competition, and hence pricing and inflation, but mostly will reduce after-tax profit margins of US corporations from current historically record high levels to merely well above average levels. Raising tax rates on carried interest is unlikely to allow hedge funds to convince institutional size investors to pay higher incentive fees.

However, reducing the federal deficit, which these provisions clearly do (although whether the entire package does is less clear), should help reduce inflation.

honestcreditguy

1 year ago

so the prescription drug reform kicks in 2026, if medicare was private company no bill to reduce prescription costs would be needed, it would just be part of the process.

The whole system rots in politics…

Heck I would vote for a Mom party, they budget, know how to feed a lot for little, can multi-task, understand what a dollar is, can discipline, don’t let whiners detract them from mission and best of all can lay down the law on the vanity freaks of congress today….

The MOM Party or WOW upside down!

RonJ

1 year ago

“Prescription drug reform”

The FDA approved Aduhelm, an Alzheimer’s drug, which the review committee said, doesn’t work. The original price tag was $56,000 a year, cut to $28,000 after complaints. The natural audience for an Alzheimer’s drug is medicare, at $28,000 a year, for a drug- that doesn’t work.

The question is whether Medicare will pay for a drug- that doesn’t work. The other question is, why did the FDA approve a drug- that doesn’t work?

Carl_R

1 year ago

Reply to RonJ

My understanding is this: When you reach 65, you have to choose Medicare (with or without a Supplement), or Medicare Advantage. Medicare Advantage acts like a normal healthcare insurance, and the premium is minus $1500 a year or so, which is in the form of $0 premium, then extra benefits such as gym membership, $200/yr to spend on OTC medical supplies, $500 dental, $200 vision, etc. How is the insurance company able to pay a fee to their agents, give an extra $1500/year in benefits to patients, and still have plenty left over for profit? Answer, by limiting care to financially expedient treatments. Medicare will pay for any treatment that is FDA approved. The insurance companies will only pay if they think it is cost justified.

Thus, yes, Medicare will pay for Aduhelm if it is FDA approved. Meanwhile, a Medicare Advantage program probably won’t. How do I know this? Well, I happened to choose a Medicare Advantage program, and I need test done next week. Per the doctor, Medicare would pay, no questions asked, but Medicare Advantage sometimes pays, and sometimes doesn’t, so I have to pay $4600 for the test up front, and I will get it back in the insurance company pays.

By the way, if you choose Medicare Advantage, it is permanent. You can’t go back, except by exploiting a loophole. The loophole is that you have to move to a different state, and one where your insurance company is not authorized to offer insurance. Then you get to make a new choice.

Jojo

1 year ago

Reply to Carl_R

Medicare Advantage is like an HMO and is basically a scam for consumers but highly profitable for the companies offering. You are limited to a network of services and MD’s.

I did not know that you were essentially locked into Medicare Advantage after you signed up. Sad! A Medicare Supplement plan would have been a much better choice. I pay around $300 monthly for Medicare A, B, D + a Plan N supplement. There is no deductibles and only one co-pay, which is $20 for office visits.

Cost of drugs and Aduhelm was used as justification for the huge jump in Medicare Part B premiums this year:

————

Biden Administration Boosts Medicare Premiums, Blames Drug Costs and Pandemic

November 13, 2021

The Biden administration announced on Nov. 12 that it’s raising Medicare premiums, a move that it blamed in part on the cost of drugs.

The Medicare Part B standard monthly premium will rise by nearly $22 to $170.10 in 2022, according to the Centers for Medicare & Medicaid Services (CMS).

“The increase in the Part B premium for 2022 is continued evidence that rising drug costs threaten the affordability and sustainability of the Medicare program,” Chiquita Brooks-LaSure, administrator of the agency, said in a statement. “The Biden–Harris Administration is working to make drug prices more affordable and equitable for all Americans, and to advance drug pricing reform through competition, innovation, and transparency.”

The move also stemmed from the limiting of the monthly premium increase in 2021 in the Continuing Appropriations Act and from “spending trends driven by COVID-19,” according to the agency.

“It also reflects the need to maintain a contingency reserve for unanticipated increases in health care spending, particularly certain drug costs,” CMS said in a statement.

One drug, in particular, was a major factor. Officials said the uncertainty surrounding the potential use of the Alzheimer’s drug Aduhelm by people covered by Medicare meant that they needed to store away a higher level of reserves. In July, CMS began analyzing whether Medicare would cover the drug, but hasn’t finished the analysis.

….

link to theepochtimes.com

Lisa_Hooker

1 year ago

Reply to Carl_R

This is unAmerican, telling people how the Government allows insurance companies to conceal the truth and screw people.

honestcreditguy

1 year ago

Reply to RonJ

that was an FDA failure, it was voted down at Adcom meeting by doctors, it was approved via Biogen owned FDA folks

the whole theory on Amyloid growth is now being debunked, billions wasted on following that path based off now debunked doctored photos….

MikeC

1 year ago

Will be interested to see the text related to the 15% minimum tax.

If it only applies to billion dollar businesses that is inconsistent with Pillar 2 of the OECD proposal. From what I have read so far, this bill does not appear to include any changes to GILTI. Perhaps this could be considered a qualified domestic minimum top-up tax but they would have to reconcile the threshold amounts.

TexasTim65

1 year ago

“Manchin and Schumer in a statement said the bill would reduce the
nation’s deficit by about $300 billion, lower carbon emissions by about
40% by the year 2030 and allow the government’s Medicare health plan to
negotiate prescription drug prices.”

They should have called this the Unicorn Act of 2022 instead of the Inflation Reduction Act. If we could really reduce carbon emissions by 40% in less than 8 years for only 430 billion then 100% of the Republicans and Democrats would have signed on to this bill so fast it would make your head spin. Heck, the whole world would sign on to do the exact same thing in their own countries for the whatever the local equivalent was (in Canada it would be about 43 billion). In addition, this unicorn act is also going to lower the deficit (ie more than pay for itself)!!!

It’s comical that they even make such absurd claims. At least it’s only 430 billion wasted (43 of which goes to the ‘big guy’) instead of 2-3 trillion.

I expect corporations will simply do better accounting fudging in order to show even less profit than ever to avoid as much of the 15% tax as possible. That’s the other way around paying (besides raising prices as Mish mentioned).

The carried interest loophole is so small (14 billion) I wonder why they even bothered as it probably cost billions in people’s time negotiating it.

If they manage to raise even one quarter of the cost of the bill (~110 billion) in revenue we should consider it a huge win.

KidHorn

1 year ago

Reply to TexasTim65

In the end, all it will accomplish it making the FEDs balance sheet $430b higher than it would be otherwise.

Zardoz

1 year ago

Reply to TexasTim65

Joe Sixpack can’t handle the truth, and the trumphumpers and gas burning environmentalists have shown that Joe will veer off into Cloud Cukoo Land rather than confront any slightly unpleasant reality.

Hence, we get unicorns, stories about how special we are, and reminders about how much more Jesus would love us if we would just impose His Holy Will upon all the peoples of the earth.

honestcreditguy

1 year ago

Reply to TexasTim65

it will add less than .01 to GDP….you don’t need a bill to negotiate pricing on drugs….

4K used electric vehicle cash for the poor only?

Democrats and republicans, same poop, 2 different piles

but one stands out right now for taking down America one stupid move at a time….

Ron Cataldi

1 year ago

In a reprisal hissy fit, Senate Republicans blocked a healthcare bill to benefit veterans injured by burn pits and chemicals, so I guess that’s deflationary.

Zardoz

1 year ago

Reply to Ron Cataldi

Our vets get thrown under the bus more often than even the Kurds.

RonJ

1 year ago

Reply to Ron Cataldi

Camp LeJeune: 1953-1967, chemically contaminated water. Congress apparently just now allowed compensation. A 20 year old in 1953 would be almost 90 and likely dead by now.

rojogrande

1 year ago

“However, the name “Inflation Reduction Act of 2022″ is ominous. Congressional bills often do the opposite of what their title suggests.”

At least that wasn’t the case with the Affordable Care Act.

KidHorn

1 year ago

Reply to rojogrande

The ACA was a tool used by the democrats to prevent health care reform. They announced this fixed health care, so no need to do anything that actually brings down costs.

Zardoz

1 year ago

Reply to KidHorn

What plan did it kill?

Lisa_Hooker

1 year ago

Reply to Zardoz

It killed the plans you made for your healthcare back when that insurance was affordable.

JackWebb

1 year ago

Reply to KidHorn

The fun part about Obamacare is that the loudest support comes from those who don’t have to use it.

shamrock

1 year ago

Is Senator Sinema on board? She was a hard no on raising taxes last year.

Zardoz

1 year ago

Reply to shamrock

She’s probably playing bad cop this time.

billybobjr

1 year ago

The affected corporations that get taxed will raise their prices to cover the tax maybe more . The ones paying the tax

will be the people it is the same as it ever was . The sad thing is that you have large percentage of people that don’t

even understand this and will applaud the corporation being taxed when they are the ones paying it . The economy is

slowing and I wouldn’t be surprised if we don’t get a big stimulus in 2023 . After all when debt reaches certain level

the only solution is more debt . Mish is correct the tax increase will be inflationary but who cares 30+ trillion and counting .

Zardoz

1 year ago

Reply to billybobjr

If you’ve ever run a business, you know that you don’t get I just raise prices of you want to keep customer.

Captain Ahab

1 year ago

Reply to Zardoz

Gotta lay off the drugs. Or wake up first…

Zardoz

1 year ago

Reply to Captain Ahab

If they could raise prices, why haven’t they?

billybobjr

1 year ago

Reply to Zardoz

They don’t need to, they are making sufficient profit and don’t want to risk losing customers . However

when the cost goes up 15% and they only have 10% margin they are going to go up because all the competition

is in the same boat and they have no other choice except reducing cost in other areas. That though would assume they are not

running the business efficiently currently . If you think that they are going to put a 20 cent tax on gasoline and the producer and retail

guys are going to eat it you really don’t know how things work.

Captain Ahab

1 year ago

Reply to Zardoz

My comment had to do with comprehension, not pricing. Your sentence defies reasonable understanding.

With respect to pricing, the better rule is to price by perceived value, Apple being a good example.

Zardoz

1 year ago

Reply to Captain Ahab

Apologies. Autocorrect thought I meant something else.

Carl_R

1 year ago

Reply to Zardoz

If I want to raise my prices, the limiting factor is what the customers will pay, and that, in turn, is affected by what competitors charge for similar products. If the government raises taxes on all competitors, all competitors will raise prices by the same amount.

Lisa_Hooker

1 year ago

Reply to Carl_R

Bringing on a round of anti-trust actions.

Zardoz

1 year ago

Reply to billybobjr

Billybob, your sistermama done raised a fool.

Doug78

1 year ago

The 15% minimum applies only to companies making over a billion. Many if not most of them have a habit of using their cash to buy back stock which has no economic value whatsoever so it will not impact the economy no those companies in a negative way.

The Carried Interest loophole closing is a good thing as it serves no purpose.

The $369 billion for “energy security and climate change” contains subsidies for renewables but also also contains subsides to clean up dirty energy like coal for example and other fossil fuels.

Of course it’s a bill and as such such has to pass both houses and I have no idea if it can. One thing is sure is that easily half the representatives do not have the mental powers to understand a simple bill let alone this one.

For those who enjoy reading 700 pages of lawyerese you can find the total bill here:

link to democrats.senate.gov

Captain Ahab

1 year ago

Reply to Doug78

“Many if not most of them have a habit of using their cash to buy back stock which has no economic value whatsoever.”

Assuming that the cash is already taxed at the corporate tax rate, as a shareholder, I would rather pay capital gains tax than income tax on dividends.

Siliconguy

1 year ago

Reply to Captain Ahab

Qualified dividends have the same rate as capital gains. And as a retired person I would prefer the dividend stream to having to sell the stock and never getting anything from it again.

Doug78

1 year ago

Reply to Captain Ahab

Capital gains depend on the market and not on the company buying back its stock or not. Dividends however depend on what the shareholders decide it to be and therefore a more reliable source of income. From a corporate finance point of view neither one is better because the same amount of cash leaves the company. For the individual it all depends on his individual tax structure. Generally CEOs like buying back stock vs giving dividends because it makes it easier for them to reach their financial ratio targets. For the broader economic activity point of view buybacks do not put any money in the pockets of anyone but dividends do. That is the difference.

Carl_R

1 year ago

Reply to Captain Ahab

As I have shown before, stock buybacks and one time dividends are mathematically identical. Once upon a time there were different tax consequences, so buybacks were preferred. These days they continue, I suppose from force of habit.

Bbbbbbb

1 year ago

Why do you never complain about the $800+ billion the US spends yearly on “Defense” being inflationary?

rojogrande

1 year ago

Reply to Bbbbbbb

Who is this question directed to? Mish has stated many times he opposes the ridiculous amount of defense spending, probably whether it’s inflationary or not though I can’t speak for him.

Zardoz

1 year ago

Reply to Bbbbbbb

And what about the lizard people?

Siliconguy

1 year ago

Reply to Zardoz

They taste like chicken and are no problem.

Doug78

1 year ago

Reply to Siliconguy

From a reliable source I heard that they find us very tasty also. The present tendency toward plumpness is in reality their doing.

Lisa_Hooker

1 year ago

Reply to Zardoz

The lizard people are preparing to repel the invasion by the aliens on the dark side of the moon, as you well know!

KidHorn

1 year ago

Reply to Bbbbbbb

Every penny spent by the government is inflationary. Is Mish supposed to make a list of all government expenditures?

Lisa_Hooker

1 year ago

Reply to KidHorn

MIsh? No! But it would be nice if the Government did.

Casual_Observer2020

1 year ago

FWIW the chips act will spur investment in semiconductors again. I do expect to see some major announcements by American semiconductor companies once that is passed. It will be a positive overall for the industry overall. Expect more cooperation between Japan, South Korea, the US, EU, southeast Asia, Australia and the UK because of this.

Captain Ahab

1 year ago

Reply to Casual_Observer2020

Seriously? What it will do is spur government involvement in investment decisions–which are more effectively driven by competitive factors, NOT A POLITICAL AGENDA.

KidHorn

1 year ago

Reply to Casual_Observer2020

This will likely end up like us trying to increase solar panel production in the US. The money is spent and no one accounts for where it went. And China still makes way more panels than we do.

Lisa_Hooker

1 year ago

Reply to Casual_Observer2020

Designed to enrich the already rich. Small or new companies need not apply.

Casual_Observer2020

1 year ago

Most corporations already pay 15%. This would close the loophole that Amazon and others get away with. It is effectively a corporate AMT. I was in favor of this but at 7% like it is in Singapore. Making it 15% actually creates a level playing field.

No one feels sorry for hedge funds and I have family in that industry. They know they are gambling with other people’s money. The corporate AMT should apply to them as well.

Maybe the new tax code will favor investing in productivity growth businesses and job creation rather than speculation. One can hope.

Mish

1 year ago

Reply to Casual_Observer2020

I do not have any problems with eliminating the hedge fund loophole. I would also tax executive stock options. My big concern is how they deal with climate.

Captain Ahab

1 year ago

Reply to Mish

At what point do you tax the option? When the option is given? When used? How do you recruit and keep key people and keep salaries manageable?

Captain Ahab

1 year ago

Reply to Casual_Observer2020

Amazon plays less tax because it is MASSIVELY investing in its infrastructure. The depreciation deduction reduces its tax burden.

The truth is that the Inflation Bill will play political games–normal behavior for Democraps.

There are ways to increase innovation and productivity-punishing companies that are innovative and productive is not a way. Example: higher deductions for investment in innovation and infrastructure provide incentives without the government micromanaging business.

TexasTim65

1 year ago

Reply to Casual_Observer2020

Carried interest loop hole is so small (14 billion) that I wonder why they bothered or if hedge funds will even care given the amount of wealth they deal with. It’s a rounding error.

Manchin and Schumer Agree on 15% Corporate Minimum Tax, Climate, and Healthcare

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