Sweeping Budget Package Passes Senate; House Will Take Up Measure Friday


WASHINGTON — After a year of negotiations, impasses and political maneuvering, the Senate passed Democrats’ top domestic priority: an economic package that would pump hundreds of billions of dollars into clean energy programs, raise taxes on corporations and lower health care costs. 

The Senate voted 50-50 along party lines and Vice President Kamala Harris cast the tie-breaking vote to send the measure to the House, which is planning to return briefly from August recess to take it up Friday.

Democrats used the budget reconciliation process to avoid the need for 60 votes to clear a Republican filibuster. But even a simple majority vote required unanimity in the Democratic caucus, which they’d been unable to achieve until this month.

Before final passage, the Senate spent more than 15 hours voting on amendments and dilatory motions during a free-for-all process known as “vote-a-rama.” There were a total of 37 votes along the way before final passage.

An official Congressional Budget Office “score” wasn’t yet available. But based on preliminary information and previous estimates, the bill would spend more than $450 billion over 10 years on energy and climate programs and tax breaks, a three-year extension of more generous subsidies for purchasing health insurance on public exchanges, expanded Medicare prescription drug benefits and caps on monthly insulin copays.

The package would be more than offset through tax increases on corporations, enhanced IRS tax enforcement, Medicare savings from allowing price negotiations directly with pharmaceutical companies on certain drugs and new taxes and fees on oil and gas companies. On net, the package is expected to reduce deficits by roughly $300 billion over a decade.

Deficit reduction was a major priority for Sen. Joe Manchin III, D-W.Va., who opposed the much larger reconciliation package the House passed last year. That measure would spend and raise roughly $2 trillion over a decade, leaving little guaranteed money for deficit reduction. 

Negotiation roller coaster

After Manchin effectively killed the House version of the bill in December, negotiations stalled for months until he and Senate Majority Leader Charles E. Schumer, D-N.Y., began private talks this spring on a downsized package.

Manchin identified three goals he was willing to pursue in those negotiations: lowering prescription drug costs; shoring up fossil fuels in the short term and transitioning to more clean energy sources in the long term; and restoring fairness to the tax code.

Left off the table — although other Democrats kept prodding — were major party priorities like an expanded child tax credit, paid family and medical leave, universal pre-kindergarten, child care for kids under 6, higher education assistance, affordable housing, immigration relief and expansions of Medicaid and Medicare.

After Manchin got spooked by June consumer price index data showing 9.1% inflation, he wanted to hold off on reconciliation until the fall. But Schumer convinced him to support a narrow health care package.

For two weeks most Democrats thought all they’d pass this summer was that tapered measure, with the prescription drug provisions and a two-year extension of the expanded health insurance subsidies.

But after a few days of cooling off, Manchin and Schumer resumed their negotiations on climate and tax provisions. On July 27, they stunned Washington and announced agreement on a bill close to what the Senate ultimately passed. They dubbed it the “Inflation Reduction Act,” though the CBO and other independent analysts ultimately pointed out it would have little impact on price rises one way or another.

New taxes

The trickiest part of the negotiations was deciding on the right combination of revenue raisers to pay for the spending and deficit reduction. That became more complicated as inflation rose and more centrist Democrats began to worry it wasn’t the best time to raise taxes. Months of drawn-out talks also left more time for those whom the tax increases would hit to fight against them.

Sen. Kyrsten Sinema, D-Ariz., had a heavy hand shaping the tax package. She dashed many Democrats’ hopes early on of reversing the 2017 Republican tax law by raising corporate, individual and capital gains tax rates. In the final days of negotiations, Sinema also removed a provision to increase taxes on carried interest, a form of compensation for investment fund managers.

The new taxes that made it into the Senate’s final bill are a 1% tax on what public companies spend on stock buybacks and a 15% minimum tax based on corporations’ income reported to shareholders. Neither tax was part of the more sprawling revenue title that won approval from the House’s tax-writing Ways and Means Committee last fall, which included multiple increases on the wealthiest Americans that were ultimately squeezed out.

The minimum tax is aimed at preventing the largest corporations, those earning at least $1 billion, from paying very low effective tax rates. But the final version still offers a range of exemptions for purchases of machinery and other equipment; amortization of wireless spectrum assets; pension plan contributions; net operating losses; tax credits for research expenses, investments in renewable energy and low-income housing projects and more.

In a final change negotiated shortly before passage, Democrats agreed to cut language that counted businesses that fall under a corporation’s umbrella for the tax, which companies argued would impact businesses private equity firms invest in.

The package infuses the IRS with almost $80 billion over the next decade to enforce the tax code, fulfilling a Biden administration priority of bolstering the agency to go after tax cheats. Another top issue for Biden’s Treasury Department — raising the minimum tax on multinational companies’ foreign earnings to better align with an international pact to root out tax havens — didn’t make it in after global progress stalled.

Health care

The bill would finally achieve a cornerstone of Democrats’ longtime campaign platform to let Medicare negotiate prices directly with drug manufacturers, but under strict parameters. The final deal would only apply to a maximum of 20 high-cost drugs that lack competition.

Republicans and industry lobbyists have derided the bill as the death knell of pharmaceutical innovation. While the CBO estimated — with considerable uncertainty — that the measure would result in as many as 15 fewer new drugs over 30 years, Republicans have trumpeted a University of Chicago analysis projecting as many as 342 fewer drugs over 18 years.

Democrats had kept Sen. Raphael Warnock’s proposed $35 a month cap on insulin costs in the bill without having it vetted by the Senate parliamentarian, daring Republicans to raise a budget point of order and take a roll call vote against a politically popular provision.

Sen. Lindsey Graham, R-S.C., only partly obliged by raising a budget point of order about the cap under private health insurance plans. He raised no objection to the bill’s cap on insulin prices for Medicare patients.

Sen. Patty Murray, D-Wash., proposed to waive the budget rules for the provision. “The cost of insulin has tripled over the last decade and it’s not like it’s three times better,” she said.

Seven Republicans joined Democrats, but the 57-43 vote to waive budget rules still fell short of the 60 votes needed, and the $35 insulin cost cap for commercial health plans was removed.

In the vote immediately preceding that, the Senate rejected, 50-50, an amendment from Sen. John Kennedy, R-La., that would lower insulin costs by providing $3.1 billion to help federally qualified health centers cover the direct costs of discounted insulin and epinephrine for qualifying patients through fiscal 2026.

Murray said Republicans were trying to use the amendment to derail the Democrats’ proposed $35 insulin cap in commercial health plans.

Additionally, the bill would cap annual out-of-pocket costs for Part D patients at $2,000, and offer free vaccines to seniors in the Medicare program.

Extending more generous subsidies for insurance plans bought on the 2010 health law’s marketplaces became a priority in the weeks before a package came together, as Democrats realized that, absent action, notices of higher charges would go out just before November’s elections. They settled on a three-year extension to avoid another election-year dilemma in 2024.

Energy and climate

The centerpiece of the Democrats’ bill on climate change is a $270 billion package of tax credits to incentivize renewable electricity production, electric vehicles, energy efficiency improvements for homes and buildings, manufacturing to boost renewable energy supply chains and more.

To maximize the benefit of some incentives, clean energy projects would have to pay the going rate for similar jobs in the local area and hire apprentices from government-run programs, which Senate Finance Chair Ron Wyden, D-Ore., touted as ensuring that “clean energy jobs will be good-paying jobs.” Subsidies for building facilities and buying equipment or other technology would have to source U.S.-made steel and iron.

The credits offsetting what consumers pay for electric vehicles would have their own set of strings, tying access to whether enough key components are sourced from the U.S. or its allies, instead of China. Those Manchin-led mandates saw a flurry of pushback, with some automakers and Democrats concerned they were too strict.

The bill’s other climate and energy provisions include $27 billion in grants to help attract private investment in “zero-emission technologies” such as rooftop solar; $20 billion in loans to establish new “clean vehicle manufacturing plants” and a fee on emissions of methane, a potent heat-trapping gas, from oil and gas sites. The measure would also reinstate the lapsed “Superfund” tax on oil producers and importers at a higher rate, with the money going to help clean up contaminated sites.

To assuage Manchin, Schumer agreed to allow new lease sales for oil and gas development on up to 2 million acres offshore and 60 million on shore, over the next decade.

Democrats from Western states secured a late $4 billion addition to the package for the Bureau of Reclamation to address drought.

Climate modelers estimate the measure would drive down electricity prices and greenhouse gas emissions from power plants.

Resources for the Future, a nonpartisan research organization, estimates retail electricity costs would drop 5 to 7% and the average U.S. household would save $170 to $200 a year. Some independent experts say the bill would be the most significant climate bill in U.S. history, knocking down domestic emissions roughly 40% by 2030 and getting within “striking distance” of President Joe Biden’s 50% goal.

Byrd-ed out

While Democrats successfully blocked most GOP amendments, Republicans were able to strike a handful of minor provisions on budget technicalities.

One of the changes would remove the bill’s moniker “Inflation Reduction Act” from the official text; another would remove language expressing the intent of the bill to protect households earning less than $400,000 from tax increases.

Neither of those provisions, nor a separate section dealing with the tax treatment of certain payments to farmers and ranchers, had a budgetary impact, therefore they were vulnerable to the “Byrd rule” challenge from Graham, the Budget Committee’s top Republican.

Graham also struck another provision on a Byrd rule point of order, which Republicans earlier tried unsuccessfully to remove via straight amendment: $45 million for the EPA to implement greenhouse gas regulations. Republicans said the real purpose was to make environmental policy, and the budgetary impact was “merely incidental.” 

Still, the bulk of the package survived intact, and Democrats were in celebration mode even before the vote-a-rama got underway.

“This is an enormous win for senior citizens and taxpayers. This is an enormous win for clean air. It’s an enormous win for being able to go after wealthy tax cheats,” Wyden said. “Pretty darn good package.”