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September 30, 2022 10:44 pm

National News

Split Congress Passes Inflation Reduction Act

Credit: iStock

Reinette LeJeune

On August 7th, after an all-night session, the U.S. Senate passed major climate, health care and tax legislation called the Inflation Reduction Act. During the session, legislators voted on dozens of proposed amendments in a process known as “vote-o-rama.” As an evenly split Senate, the 50 legislators that caucus with Democrats backed the package, with Vice President Kamala Harris serving as the tie-breaker. The bill’s passing became possible after months of intense negotiations – most of which was focused on getting the support of two Democratic centrists, Senators Joe Manchin of West Virginia and Kyrsten Sinema of Arizona. 5 days later, the House passed the bill with a 220 to 207 vote, with no Republicans supporting the act. 

This bill is the country’s biggest climate investment in U.S. history, while simultaneously providing health care subsidies for millions of Americans and enacting a 15 percent minimum tax on corporations that make more than $1 billion in profits. The version of the bill that passed in the Senate, however, is significantly smaller than originally promised by President Joe Biden – having been known before as the Build Back Better Act. The bill’s top priority is the reduction of climate change, investing more than $360 billion into energy and climate change programs over the next decade. Democrats say that the bill should reduce carbon emissions by nearly 40 percent by 2030, which sits about 10 percent lower than the target it was originally pledged with. An additional $60 billion will be given to cities that are disproportionately affected by climate change, with several millions being given as a “climate resiliency funding” for Native American communities.

The bill should also reduce health care costs for Americans by allowing Medicare to directly negotiate the price of medicine with drugmakers, and ensuring that recipients pay a maximum of $2,000 in out-of-pocket costs for prescriptions annually. Congress also sought the capping of insulin for uninsured people at $35, but the provision was removed by Senate Republicans during the amendment process. 

Costs for the bill would be covered, in part, by the new 15% minimum tax rate applied to corporations with profits of $1 billion or more. It also makes companies pay a 1 percent tax when buying back their own stock, while significantly bolstering the IRS’s tax evasion enforcement. To ensure Arizona Senator Sinema’s support, a measure that allows  hedge fund managers to have their profits taxed at a lower rate of 20 percent as opposed to the individual income tax rate of 37 percent for the highest bracket of earners – was adopted. 

Former Federal Reserve Economist Claudia Sahm predicts short-term effects on inflation will be modest, but instead the bill’s climate provisions would 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.”