By Stephen Herzenberg and Marc Stier
We are happy to see that a deal has been reached to address growing inflation by reducing prescription health care costs, taxing corporations and the ultra-rich, and combatting climate change and reducing energy costs. We call on the United States Senate and House of Representatives to take immediate action to pass this legislation and send it to President Biden’s desk.
This legislation, along with the Infrastructure law and the American Rescue Plan, again shows that Democrats are committed to meeting the needs of everyone in the country, no matter where we live or what we look like or whether we are rich and poor, by using the power of the government. Only by acting together can we ensure that we have the roads and bridges and public transit critical to our economy, affordable health care, and clean energy. And only by acting together can we give our children and grandchildren the most important thing we can leave them: a healthy planet. In addition, this legislation is fully paid for by insisting that wealthy corporations pay what they owe for the public goods that are critical to their operations. The Inflation Reduction Act of 2022 does three very important things:
1. Reforms our unfair tax system to prevent corporations from using loopholes to get out of paying their fair share and ensures that the ultra-rich pay taxes on income from investments just as workers’ pay on wages.
2. Reduces health care costs by extending subsidies for people who purchase their insurance through the Affordable Care Act exchanges and allows Medicare to negotiate for lower prescription drug prices.
3. Reduces energy costs and carbon pollution while growing good sustainable economy jobs. The bill creates incentives for consumers and businesses to invest in energy efficient and clean energy products, lowering their energy bills and boosting the economy.
The bill is estimated to bring in $739 billion in revenue and will invest $433 billion to lower health care costs and combat climate change. The remainder will go to addressing the deficit. (Source: https://www.vox.com/23281547/build-back-better-joe-manchin-inflation-reduction-act)
We laud the tax reform provisions in the bill which will level the playing field between working families and wealthy corporations and the ultra-rich. Twenty-six of the richest people in America paid an average federal income tax rate of just 4.8% over six years (2013-18) when the growth in their wealth is counted as income. And at least 55 of the largest corporations in America paid no federal corporate income tax in 2020 despite enjoying huge pretax profits. Throughout the United States billionaires got richer during the pandemic while so many of us struggled to get by. In Pennsylvania, the state’s 17 billionaires’ collective wealth more than doubled in the first two years of the pandemic. And the US loses an estimated $1 trillion a year due to fraud in the tax returns of the rich and corporations. To correct these inequities in our tax system the bill proposes:
- An increase in funding for the IRS to ensure that it has the resources to monitor that tax returns of wealthy investors and corporations ensuring that they pay what they already owe. This will raise almost $125 billion in 10 years.
- Inclusion of the US in a worldwide agreement to institute a minimum 15% tax on the profits that large, wealthy corporations report to their investors. This would raise $300 billion over 10 years.
- A partial reduction in the carried interest exemption that allows private investors who make over $400,000 a year to be taxed on some of their investment earnings at a lower rate. This would raise $14 billion over ten years.
Beyond tax reform, reducing health care costs is critical for millions of Americans, and we are pleased that Medicare will finally be able to negotiate with drug manufacturers for lower prices. The legislation caps out-of-pocket prescription costs for Medicare Part D enrollees at $2,000 per year. It also continues the reduced health care premiums for Americans who purchase insurance through the ACA exchanges that were initially included the American Rescue Plan but that were set to expire if not for this legislation. I% of the federal poverty level—about $51,000 for an individual and $104,800 for a family of four in 2021—would continue to be eligible for subsidies while subsidies for lower-income individuals and families would continue at a higher level increased, which in many cases eliminated their premiums entirely. 280,000 Pennsylvanians now secure health insurance on Pennie.com, the Pennsylvania insurance marketplace. Our rough estimate is that at least a third, and perhaps up to a half, of those 280,000 saw their premiums go down in 2021 and will continue to do so as a result of this legislation.
The package also includes the most ambitious climate action ever taken by Congress. The bill includes the following historic provisions:
- A $4,000 tax credit for consumers to buy used electric vehicles and up to a $7,500 tax credit for consumers to buy new EVs, $3 billion for electric U.S. Postal Service trucks, $1 billion for electric heavy-duty vehicles such as school buses and garbage trucks, and $3 billion for zero-emission technology at U.S. ports.
- $9 billion in consumer home energy rebate programs to electrify home appliances and for energy-efficient retrofits and 10 years of consumer tax credits to make homes energy efficient and use more clean energy, making heat pumps, rooftop solar panels, and electric HVAC and water heaters more affordable.
- $10 billion investment tax credit to build clean-technology manufacturing facilities, such as those that make electric vehicles, wind turbines, and solar panels.
- A methane emissions reduction program.
- A reinstated “polluter pays” tax to increase funding to clean up Superfund sites.
- $50 million to inventory and protect old-growth forests, which serve as critical natural carbon sinks, on National Forest System land.
In a separate win for Appalachian coal country, the final CHIPS+ bill in Congress (i.e., the bipartisan innovation bill) passed the Senate and House this week and includes a $1 billion pilot version of the “RECOMPETE Act.” This will provide distressed places that have lost manufacturing and extraction jobs with 10 years of significant resources to reduce joblessness and implement a reimagined future with shared prosperity and sustainability.
In sum, yesterday brought two important steps towards making the critical investments we need to achieve a more equitable and sustainable future. If we can get the Inflation Reduction Act over the finish line it will mark the most ambitious and successful federal legislative session in decades.
The Keystone Research Center is a nonprofit, nonpartisan research organization that promotes a more prosperous and equitable Pennsylvania economy. The Pennsylvania Budget and Policy Center is a nonpartisan policy research project that provides independent, credible analysis on state tax, budget, and related policy matters with attention to the impact of current or proposed policies on working families and individuals.
412 N. 3rd Street, Harrisburg, PA 17101 | 717-255-7156 | www.krc-pbpc.org
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