Senate Passes Democrats’ Climate, Healthcare and Tax Bill

Along with a new 15% corporate minimum tax, it creates a 1% excise tax on companies’ stock buybacks and sets aside roughly $300 billion toward reducing the deficit.

Senate passage of the bill through the evenly divided chamber is a victory for Democrats that seemed improbable just weeks ago, after talks fell apart between Senate Majority Leader

Chuck Schumer

of New York and key centrist Sen.

Joe Manchin

of West Virginia before quickly reviving. Every Republican lined up against the bill, meaning any one Democratic defection could have sunk the effort in the Senate.

“It’s been a long, tough, winding road, but at last, at last we have arrived,” Mr. Schumer said after passage of the bill, dubbed the Inflation Reduction Act.

The deal is the product of difficult negotiations among Democrats to translate their control of Congress and the White House into progress on a series of longtime policy ambitions before the midterm elections, when inflation and the economy are set to be top of many voters’ minds.

The package will still need to clear the narrowly Democratic House in a vote scheduled for Friday. Speaker

Nancy Pelosi

(D., Calif.) and progressive caucus leader

Pramila Jayapal

(D., Wash.) have backed the proposal, putting it on course for likely approval.

Republicans argued that the climate and tax package would do nothing to cool inflation and would hurt the economy, and that tax increases on corporations would hit households as well.

“This bill is going to mean more taxes, more spending, higher prices—right in the middle of a combination of an inflation time and a time of recession.” Sen.

John Barrasso

(R., Wyo.) said during the bill’s consideration.

During a marathon session that lasted all night, culminating in final passage Sunday afternoon, Republicans offered a barrage of amendments to the legislation. Over 15 hours, they sought to add immigration restrictions, limit its tax policies and change its energy provisions. Democrats defended the bill against changes from many of the GOP amendments, as well as from changes within their own ranks, largely lining up to preserve the bill as it was written.

Democrats used a special process called reconciliation, which allows bills to advance with a simple majority rather than the 60 votes typically needed in the Senate. But reconciliation mandates that provisions in the legislation be strictly related to the budget. Those rules pushed Democrats to drop an effort to limit the rate of price increases for drugs in the commercial market.

Reconciliation also requires lawmakers to undergo the open-ended amendment process, when lawmakers made a final change to the legislation. On Sunday afternoon, Democrats scaled back the corporate minimum tax to shield individual companies operating under the umbrella of a single owner, a step that would help the private-equity firms that own such companies.

The series of last-minute changes to the text means Congress’s nonpartisan scorekeeper didn’t produce a final analysis of the bill’s budget impact. Democrats have said earlier versions would raise roughly $740 billion in revenue and spend roughly $430 billion of that over a decade.

Mr. Biden, whose approval rating has been stung by rising inflation, praised passage of the bill, saying it fulfills his pledge to lower costs for families and not raise taxes on households making under $400,000 a year.

“It required many compromises. Doing important things almost always does,” the president said, urging the House to pass the bill quickly so he could sign it into law.

The proposed taxes wouldn’t raise taxes directly on middle-class households, but higher business taxes can add costs elsewhere that affect individuals. That can include smaller profits for shareholders or lower wages paid to workers. Experts disagree about how much of corporate tax increases is passed on to shareholders or workers.

The bill’s prescription drug plan would for the first time empower Medicare to negotiate the prices of a limited set of drugs selected from among those that account for the biggest share of government expenditures, long a goal for lawmakers. It would also cap out-of-pocket drug costs for Medicare beneficiaries at $2,000 a year beginning in 2025, and starting next year mandate free vaccines for Medicare enrollees. It would cap insulin costs for Medicare patients at $35 a month starting next year.

Subsidies for purchasing health insurance through the ACA, which Democrats passed into law in 2021, would continue through 2025, under the bill, an extension that will cost $64 billion.

On climate, the bill’s tax incentives aim to channel billions of dollars to wind, solar and battery developments that put clean power onto the grid. Consumers could receive subsidies for certain windows, heat pumps and other energy-efficient products, as well the extension of a $7,500 tax credit to buy electric vehicles.

Those investments could help cut greenhouse-gas emissions 31% to 44% below 2005 levels in 2030 in the U.S., compared with 24% to 35% under current policy, according to Rhodium Group, an independent research firm. At the insistence of Mr. Manchin, the legislative package also provides support for traditional sources of energy such as oil, gas and coal along with nuclear power. Democrats also committed to take up legislation later this year that would streamline permitting processes for energy projects.

Talks with Mr. Manchin blew up multiple times before restarting and ultimately leading to the deal. Democrats also had to keep on board Sen.

Kyrsten Sinema

of Arizona, an iconoclastic pro-business lawmaker who repeatedly forced the party to scale back its plans to raise taxes.

After eyeing last year as much as $3.5 trillion in spending on a bevy of programs—including child care, community college and paid leave—Democrats settled on a fraction of that. Mr. Manchin threw much of Mr. Biden’s agenda into doubt last year when he blocked a roughly $2 trillion package that had passed the House, repeatedly arguing against a large-scale spending bill that he feared could make inflation worse.

Over the course of seven months in 2022, Democrats carefully tried to re-engage with Mr. Manchin. Messrs. Manchin and Schumer closed in on a package that focused on raising taxes, bolstering energy and climate programs and lowering healthcare costs.

As they kept most Democrats out of the loop on the negotiations, Mr. Schumer said one of his top aides kept Ms. Sinema abreast of the talks.

But in mid-July, Mr. Manchin began to have doubts about the legislation as inflation continued to rise to even higher levels. Mr. Manchin told Mr. Schumer that he could agree to soon pass legislation that only lowered drug costs and extended ACA subsidies, putting the tax increases and climate programs in danger. When that stance was reported in the news media, many Democrats and Republicans took that to mean the talks on any package were over.

“I was sort of surprised and frankly, he knows this, I was upset. I thought we had come pretty close to an agreement,” Mr. Schumer said in an interview. Mr. Manchin has said the two men agreed to give talks another shot after their tempers cooled.

Messrs. Manchin and Schumer began talking again secretly, without informing any other lawmakers or the White House, announcing an agreement within days. Democrats, resigned to the very narrow deal focused on prescription drugs and healthcare, suddenly again had a chance of approving major financing for combating climate change.

Once Democrats had a deal with Mr. Manchin, Mr. Schumer still had to work out a final set of issues with the caucus’s other traditional holdout: Ms. Sinema. She opposed a proposed increase in taxes on private-equity managers’ carried-interest income, a provision that Mr. Manchin had sought.

“He very very wisely and unselfishly said, ‘Look I can’t get everything I want either, so we’ll have to drop it.’ Sen. Sinema felt strongly it shouldn’t be in,” Mr. Schumer said.

The talks with Ms. Sinema, which continued right up until the final vote, also led Democrats to repeatedly scale back the 15% minimum tax on large, profitable corporations. Not only did they relax the measure on Sunday, they had also previously altered it to allow companies to continue to accelerate depreciation for tax purposes. Some manufacturers had warned that denying or deferring accelerated depreciation could negatively impact their businesses.

To add revenue back into the bill after dropping carried interest and paring back the corporate minimum, Democrats added in the 1% excise tax on stock buybacks. They also extended limitations on deductions for business losses by two years.

Because Democrats at various points throughout the year had faced the possibility of not passing any package, they have largely celebrated the deal, even if it is more limited than some of their initial hopes. Sen.

Bernie Sanders

(I., Vt.), a leading progressive in Congress who caucuses with Democrats and voted for the bill, had called on Democrats to expand the legislation on Saturday as he argued the bill doesn’t address housing, child care and other major issues.

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 is a fragile arrangement,” he said.

Write to Andrew Duehren at [email protected] and Siobhan Hughes at [email protected]

Along with a new 15% corporate minimum tax, it creates a 1% excise tax on companies’ stock buybacks and sets aside roughly $300 billion toward reducing the deficit.

Senate passage of the bill through the evenly divided chamber is a victory for Democrats that seemed improbable just weeks ago, after talks fell apart between Senate Majority Leader

Chuck Schumer

of New York and key centrist Sen.

Joe Manchin

of West Virginia before quickly reviving. Every Republican lined up against the bill, meaning any one Democratic defection could have sunk the effort in the Senate.

“It’s been a long, tough, winding road, but at last, at last we have arrived,” Mr. Schumer said after passage of the bill, dubbed the Inflation Reduction Act.

The deal is the product of difficult negotiations among Democrats to translate their control of Congress and the White House into progress on a series of longtime policy ambitions before the midterm elections, when inflation and the economy are set to be top of many voters’ minds.

The package will still need to clear the narrowly Democratic House in a vote scheduled for Friday. Speaker

Nancy Pelosi

(D., Calif.) and progressive caucus leader

Pramila Jayapal

(D., Wash.) have backed the proposal, putting it on course for likely approval.

Republicans argued that the climate and tax package would do nothing to cool inflation and would hurt the economy, and that tax increases on corporations would hit households as well.

“This bill is going to mean more taxes, more spending, higher prices—right in the middle of a combination of an inflation time and a time of recession.” Sen.

John Barrasso

(R., Wyo.) said during the bill’s consideration.

During a marathon session that lasted all night, culminating in final passage Sunday afternoon, Republicans offered a barrage of amendments to the legislation. Over 15 hours, they sought to add immigration restrictions, limit its tax policies and change its energy provisions. Democrats defended the bill against changes from many of the GOP amendments, as well as from changes within their own ranks, largely lining up to preserve the bill as it was written.

Democrats used a special process called reconciliation, which allows bills to advance with a simple majority rather than the 60 votes typically needed in the Senate. But reconciliation mandates that provisions in the legislation be strictly related to the budget. Those rules pushed Democrats to drop an effort to limit the rate of price increases for drugs in the commercial market.

Reconciliation also requires lawmakers to undergo the open-ended amendment process, when lawmakers made a final change to the legislation. On Sunday afternoon, Democrats scaled back the corporate minimum tax to shield individual companies operating under the umbrella of a single owner, a step that would help the private-equity firms that own such companies.

The series of last-minute changes to the text means Congress’s nonpartisan scorekeeper didn’t produce a final analysis of the bill’s budget impact. Democrats have said earlier versions would raise roughly $740 billion in revenue and spend roughly $430 billion of that over a decade.

Mr. Biden, whose approval rating has been stung by rising inflation, praised passage of the bill, saying it fulfills his pledge to lower costs for families and not raise taxes on households making under $400,000 a year.

“It required many compromises. Doing important things almost always does,” the president said, urging the House to pass the bill quickly so he could sign it into law.

The proposed taxes wouldn’t raise taxes directly on middle-class households, but higher business taxes can add costs elsewhere that affect individuals. That can include smaller profits for shareholders or lower wages paid to workers. Experts disagree about how much of corporate tax increases is passed on to shareholders or workers.

The bill’s prescription drug plan would for the first time empower Medicare to negotiate the prices of a limited set of drugs selected from among those that account for the biggest share of government expenditures, long a goal for lawmakers. It would also cap out-of-pocket drug costs for Medicare beneficiaries at $2,000 a year beginning in 2025, and starting next year mandate free vaccines for Medicare enrollees. It would cap insulin costs for Medicare patients at $35 a month starting next year.

Subsidies for purchasing health insurance through the ACA, which Democrats passed into law in 2021, would continue through 2025, under the bill, an extension that will cost $64 billion.

On climate, the bill’s tax incentives aim to channel billions of dollars to wind, solar and battery developments that put clean power onto the grid. Consumers could receive subsidies for certain windows, heat pumps and other energy-efficient products, as well the extension of a $7,500 tax credit to buy electric vehicles.

Those investments could help cut greenhouse-gas emissions 31% to 44% below 2005 levels in 2030 in the U.S., compared with 24% to 35% under current policy, according to Rhodium Group, an independent research firm. At the insistence of Mr. Manchin, the legislative package also provides support for traditional sources of energy such as oil, gas and coal along with nuclear power. Democrats also committed to take up legislation later this year that would streamline permitting processes for energy projects.

Talks with Mr. Manchin blew up multiple times before restarting and ultimately leading to the deal. Democrats also had to keep on board Sen.

Kyrsten Sinema

of Arizona, an iconoclastic pro-business lawmaker who repeatedly forced the party to scale back its plans to raise taxes.

After eyeing last year as much as $3.5 trillion in spending on a bevy of programs—including child care, community college and paid leave—Democrats settled on a fraction of that. Mr. Manchin threw much of Mr. Biden’s agenda into doubt last year when he blocked a roughly $2 trillion package that had passed the House, repeatedly arguing against a large-scale spending bill that he feared could make inflation worse.

Over the course of seven months in 2022, Democrats carefully tried to re-engage with Mr. Manchin. Messrs. Manchin and Schumer closed in on a package that focused on raising taxes, bolstering energy and climate programs and lowering healthcare costs.

As they kept most Democrats out of the loop on the negotiations, Mr. Schumer said one of his top aides kept Ms. Sinema abreast of the talks.

But in mid-July, Mr. Manchin began to have doubts about the legislation as inflation continued to rise to even higher levels. Mr. Manchin told Mr. Schumer that he could agree to soon pass legislation that only lowered drug costs and extended ACA subsidies, putting the tax increases and climate programs in danger. When that stance was reported in the news media, many Democrats and Republicans took that to mean the talks on any package were over.

“I was sort of surprised and frankly, he knows this, I was upset. I thought we had come pretty close to an agreement,” Mr. Schumer said in an interview. Mr. Manchin has said the two men agreed to give talks another shot after their tempers cooled.

Messrs. Manchin and Schumer began talking again secretly, without informing any other lawmakers or the White House, announcing an agreement within days. Democrats, resigned to the very narrow deal focused on prescription drugs and healthcare, suddenly again had a chance of approving major financing for combating climate change.

Once Democrats had a deal with Mr. Manchin, Mr. Schumer still had to work out a final set of issues with the caucus’s other traditional holdout: Ms. Sinema. She opposed a proposed increase in taxes on private-equity managers’ carried-interest income, a provision that Mr. Manchin had sought.

“He very very wisely and unselfishly said, ‘Look I can’t get everything I want either, so we’ll have to drop it.’ Sen. Sinema felt strongly it shouldn’t be in,” Mr. Schumer said.

The talks with Ms. Sinema, which continued right up until the final vote, also led Democrats to repeatedly scale back the 15% minimum tax on large, profitable corporations. Not only did they relax the measure on Sunday, they had also previously altered it to allow companies to continue to accelerate depreciation for tax purposes. Some manufacturers had warned that denying or deferring accelerated depreciation could negatively impact their businesses.

To add revenue back into the bill after dropping carried interest and paring back the corporate minimum, Democrats added in the 1% excise tax on stock buybacks. They also extended limitations on deductions for business losses by two years.

Because Democrats at various points throughout the year had faced the possibility of not passing any package, they have largely celebrated the deal, even if it is more limited than some of their initial hopes. Sen.

Bernie Sanders

(I., Vt.), a leading progressive in Congress who caucuses with Democrats and voted for the bill, had called on Democrats to expand the legislation on Saturday as he argued the bill doesn’t address housing, child care and other major issues.

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 is a fragile arrangement,” he said.

Write to Andrew Duehren at [email protected] and Siobhan Hughes at [email protected]