In a 51-50 vote Senate Passes Democrats’ Climate, Healthcare and Tax Bill.
The legislation, which largely survived a review by the Senate’s parliamentarian, raises more than $700 billion in government revenue over 10 years, with much of that coming from a 15% minimum tax on large, profitable corporations and money generated by enhancing tax-collection efforts at the Internal Revenue Service. Empowering Medicare to negotiate lower prescription-drug prices and imposing a 1% tax on stock buybacks will also add revenue to the government’s budget in the next decade.
About $430 billion of those funds would be dedicated toward incentives for companies and individuals to reduce carbon emissions and an extension of subsidies for health insurance under the Affordable Care Act. The legislation dedicates the rest of the new revenue toward reducing the deficit.
The bill meets “all of our goals: fighting climate change, lowering healthcare costs, closing tax loopholes abused by the wealthy, and reducing the deficit,” Senate Majority Leader Chuck Schumer (D., N.Y.) said Saturday. “This is a major win for the American people,” he said.
A final test for the bill emerged Sunday afternoon when Sen. Kyrsten Sinema (D., Ariz.) and other Democrats joined Republicans to support an amendment from Sen. John Thune (R., S.D.) to shield individual companies operating under the umbrella of a single owner from the 15% corporate minimum tax, a step that would help the private-equity firms that own such companies.
Under the Thune proposal, the $35 billion in lost revenue from the change would be replaced by a one-year extension of the $10,000 cap on state and local taxes, a levy loathed by Democrats in high-tax states such as New York and New Jersey. It is currently set to expire after 2025.
I do not understand why hedge funds need tax breaks. But that was Sinema’s demand.
Senator Bernie Sanders criticized the bill as inadequate and flawed.
“What I am asking today is for all 50 Democrats to come together and begin the process of addressing the major crises facing working families,” he said, adding that the bill “has some good features, but also some very bad features.”
Sen. Sherrod Brown (D., Ohio), in opposing a Sanders amendment to expand the child tax credit, said the party must focus on passing the core package. “This does not advance that cause because we could lose the underlying bill,” he said. “This is a fragile arrangement.”
What’s Inside?
- The bill will implement a 15% corporate minimum tax. This targets large corporations that report big profits but pay little or nothing in income taxes. Amazon is an example.
- Beginning in 2026, the bill will allow Medicare to negotiate the prices of a limited set of drugs selected from among those that account for the biggest share of government expenditures.
- A cap out-of-pocket drug costs for Medicare beneficiaries at $2,000 a year starts in 2025.
- Starting 2023, free vaccines for Medicare enrollees.
- Subsidies enacted last year as part of the American Rescue Plan will be extended for three years, through 2025, at a cost of $64 billion.
- Extension of a $7,500 tax credit to buy electric vehicles.
- Builders, homeowners and small businesses can take advantage of “green banks” which will receive $20 billion to provide low-cost financing for energy-efficient products such as heat pumps, windows, solar panels, insulation and electric-vehicle charging stations.
- Including tax credits, the package will spend about $369 billion on climate and energy.
- The tax credits will channel billions of dollars to wind, solar and battery developments that put clean power onto the grid.
- According to Rhodium Group, an independent research firm, the bill would cut greenhouse-gas emissions 31% to 44% below 2005 levels in 2030, compared with 24% to 35% under current policy.
Budget Reduction and Climate Debate
The bill is a hodgepodge of energy subsidies and tax breaks that according to the Senate will raise a total of $739 billion in revenue, and spend a total of $433 billion.
The Congressional Budget Office says it will reduce the deficit by about $102 billion over a decade.
I suspect it will raise less and cost more.
Since most corporations don’t really pay taxes, any taxes on corporations will turn into taxes on consumers, lower dividends, or lower shareholder appreciation, mostly consumer tax hikes.
Regarding point number ten, color me skeptical.
Paul Krugman On Ending Poverty
What got lost were the extensive social programs. That’s a tragedy; we could have virtually eliminated child poverty, among other things. Even there, this bill expanded the enhanced subsidies that have helped bring uninsurance to a record low 4/
— Paul Krugman (@paulkrugman) August 7, 2022
Spending another $3-$4 trillion would have eliminated poverty and not stoked inflation!?@paulkrugman is delusional
So sad for someone who once won the Nobel prize for trade.https://t.co/jTJu0rtte7
— Mike “Mish” Shedlock (@MishGEA) August 7, 2022
Penn Wharton Estimate
Please consider the Penn Wharton Preliminary Estimates of the Inflation Reduction Act.
- PWBM estimates that the Inflation Reduction Act would reduce non-interest cumulative deficits by $248 billion over the budget window with no impact on GDP in 2031.
- The Act would very slightly increase inflation until 2024 and decrease inflation thereafter. These point estimates are statistically indistinguishable from zero, thereby indicating low confidence that the legislation will have any impact on inflation.
- We project no impact on GDP by 2031 and an increase in GDP of 0.2 percent by 2050. These estimates include the impact of debt and carbon reduction as well as capital and labor supply distortions from rising tax rates.
What About Earned Income Credit Fraud?
One of the biggest sources of fraud is Earned Income Credit.
IRS estimates that between 21 percent to 26 percent of EITC claims are paid in error.
The bill tries to avoid uncovering this fraudhttps://t.co/yuVFytAuCi
— Mike “Mish” Shedlock (@MishGEA) August 7, 2022
Will the Inflation Reduction Act of 2022 Do Anything?
On July 31, I asked Will the Inflation Reduction Act of 2022 Do Anything at All?
I came to the same conclusion as Penn Wharton.
If accurate, that is about the best we could realistically expect from any bill passed by Congress.
This post originated at MishTalk.Com.
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Mish
The only problem is, even with something that sounds as simple as that, the DONORcrat politicians are sure to have put in loopholes for the large corporations to drive through.
Corporations used to pay $1 out of every $3 tax revenue, some 50+ years ago. Now, they pay $1 out of every $8 or $9 of tax revenue.
children can be vaccinated. The federal government now limits the amount
of profit afforded to the vaccine companies to ensure low prices.”
corporations will turn into taxes on consumers, lower dividends, or
lower shareholder appreciation, mostly consumer tax hikes”
law, but some of the claims are intentional disregard of the law.”