What’s in the Inflation Reduction Act the Senate Just Passed

Senate Majority Leader Chuck Schumer, in very good spirits, after the Senate vote on Sunday.
Photo: Ting Shen/Bloomberg via Getty Images

Senate Democrats passed the Inflation Reduction Act on Sunday, delivering a long-sought legislative win for both President Joe Biden and the party ahead of the fall midterms. The massive climate, health care, and corporate tax bill will now head to the House, where it is also expected to pass, before Biden signs the legislation into law sometime later this week. No Senate Republicans supported the IRA, so Vice-president Kamala Harris delivered the tie-breaking 51st vote.

The budget reconciliation bill, which is a more limited iteration of what Democrats tried and failed to do with the “Build Back Better” package over the winter, contains the largest-ever federal investment targeting climate change — about $370 billion worth — after decades of failed efforts to mount a substantive federal response to global warming. That spending will mainly come in the form of tax credits to incentivize Americans and companies to transition to cleaner and more-efficient energy use, and may ultimately enable the U.S. to reduce its greenhouse gas emissions by 40 percent by the end of the decade (which is definitely not enough, climate scientists warn, but is at least a start).

The IRA also inks the largest expansion of federal healthcare spending since the Obama-era Affordable Care Act. The bill will allow Medicare to directly negotiate prescription medicine prices with drugmakers for the first time — another long-sought policy goal for Democrats — as well as force drugmakers to pay rebates to the U.S. if they ever raise Medicare prices beyond the rate of inflation. Though the price-negotiation won’t take effect until 2026 and will initially only apply to ten drugs, it will likely save both seniors and the federal government billions of dollars after it gets going. In addition, the IRA also caps the amount of money seniors ever have to pay out-of-pocket for prescription drugs at $2,000 per year.

Another health-care component of the IRA is a $64 billion three-year extension of insurance-premium subsidies for 13 million low- and middle-class Americans who purchase coverage from state and federal exchanges under the Affordable Care Act. Those pandemic-era subsidies were set to expire this year.

The bill is meant to pay for itself, mainly by raising taxes on wealthy corporations and reducing the federal deficit. The legislation institutes a new corporate minimum tax rate (to 15 percent) on the profits companies with more than $1 billion in annual revenue report to their shareholders. There is also a new 1 percent tax on companies that buy back their own stock. And the IRA includes an $80 billion investment in the Internal Revenue Service with the aim of expanding the agency’s ability to crack down on wealthy tax cheats, be they companies or people.

The legislation of course accomplishes far less than what nearly all Democratic lawmakers had hoped for, primarily because they had to compromise with moderate senators Joe Manchin, who stymied what had been the $2 trillion Build Back Better bill earlier this year, and Kyrsten Sinema. Manchin, who has deep political ties to the fossil-fuel industry, was able to win the inclusion of some new federal support for the industry, like mandating new federal off-shore gas leasing in the Gulf of Mexico and off the Alaskan coast. Senate Democratic leaders also made a side deal with the West Virginia senator in which they agreed to support separate legislation which would change how the U.S. approves energy projects — which would reportedly streamline the approval a gas pipeline project in Manchin’s home state.

Sinema, who apparently has deep political ties to rich investors, was able to defeat the bigger corporate minimum tax that Democrats wanted, as well as exclude from the bill tax policies which would have targeted wealthy investors.

In addition, during the messy “vote-a-rama” which preceded Sunday’s vote on the final bill, senate Republicans successfully stripped a proposal to set a $35-a-month price cap on insulin for people with private health insurance, though the cap for Medicare beneficiaries survived.

In a statement celebrating the bill and the Senate for passing it, President Biden acknowledged Sunday that, “It required many compromises,” but “doing important things almost always does.”