U.S. Senate passes $700 billion health care and climate bill, GLI voices concerns for tax implications
On Sunday, the Senate passed the Inflation Reduction Act on a party line vote of 51-50 through reconciliation which requires a simple majority only. The surprise deal comes after more than a year of internal negotiations among Democrats about the size and scope of the proposed legislation. Originally proposed by President Biden in 2021 as a sweeping $4.5 billion package, the final bill passed by Senate Democrats was trimmed to $740 billion in spending focusing on climate and energy investment along with major policy changes to health care and prescription drug prices. Despite the elimination of many harmful provisions in previous versions of this bill, GLI is opposed to the significant new tax increases and unprecedented price controls that would undermine economic growth.
What’s in the bill?
- $370 billion in climate investment which includes tax credits for electric vehicles and money for renewable energy programs.
- Enables Medicare to negotiate drug prices for certain prescriptions and caps the out-of-pocket costs for enrollees at $2,000 annually beginning in 2025.
- Extends subsidies for the Affordable Care Act, originally part of a pandemic relief package, for an additional three years.
- Includes provisions for new leases for oil and gas productions and an agreement to pass permitting legislation separately.
How is it being paid for?
- 15% minimum tax on large corporations as they report to shareholders, known as book income, as opposed to the Internal Revenue Service. This applies to companies with profits over $1 billion and would raise $258 billion over a decade.
- 1% tax on stock buybacks, raising $74 billion in revenue.
- The prescription drug pricing changes are estimated to save $288 billion over the next decade.
- IRS tax enforcement should raise an additional $124 billion.
Raising the minimum corporate tax to 15% punishes innovation and would discourage companies from capital investments, diminishing long-run economic output and reducing after-tax incomes for taxpayers. The new excise tax will distort the efficient movement of capital and diminish the value of Americans’ retirement savings. Additionally, the price controls effected through Medicare will hinder research and development efforts by pharmaceutical companies and lead to less innovation and the development of fewer life-saving drugs in the long-run.
While proponents claim that the legislation will reduce inflation and the country’s deficit, economic analysis from the Congressional Budget Office found the legislation will have little to no impact on inflation this year. An analysis from the Tax Foundation found that the bill may actually worsen inflation by constraining the productive capacity of the economy.
GLI signed onto a coalition letter with the U.S. Chamber of Commerce expressing concern about the tax implications of this bill.
The U.S. House of Representatives returns from recess this Friday, August 12 and is expected to approve the bill with support from Democrats only.