UPDATED: Senate Majority Leader Chuck Schumer (D-NY) and Sen. Joe Manchin (D-WV) said that they have reached a deal on a massive bill that includes climate and energy initiatives as well as a 15% corporate minimum tax.
The agreement surprised reporters, as Manchin several weeks ago indicated that he would not support key aspects of Joe Biden’s agenda, including climate programs, because of concerns of inflation.
In a joint statement, Schumer and Manchin said that their agreement, called the Inflation Reduction Act of 2022, would include $300 billion in deficit reduction and $369.75 billion in energy and climate change programs over the next decade. According to a summary, the climate proposals are heavy in tax credits and grants, including $4,000 for middle and lower income consumers to buy used “clean” vehicles and up to $7,500 to buy new ones. Other credits would be aimed at a wide range of uses, including rooftop solar and HVAC.
The bill also would extend an expansion of the Affordable Care Act through 2025, and allow for Medicare to negotiate for prescription drugs.
According to the one-page summary of the bill, the legislation would reduce carbon emissions by 40% by 2030.
All told, the legislation includes $433 billion in spending and $300 billion in deficit reduction, while raising $739 billion in revenue. That would come via a 15% corporate minimum tax that would raise an estimated $313 billion, while $288 billion would come from prescription drug pricing reform, $124 billion from increased IRS enforcement and $14 billion from placing new limits on the carried interest loophole.
Studios and media companies, along with lobbyists across industries, have opposed proposals to raise the corporate tax rate from the current 21%. The 15% minimum tax would apply to corporations with profits in excess of $1 billion, according to Schumer’s summary of the proposal.
“Corporations would generally be eligible to claim net operating losses and tax credits against” he minimum tax, Schumer’s summary stated. Companies also would be able to claim a tax credit against the regular corporate tax for alternative minimum taxes paid in prior years as long as their tax liability in any year exceeds 15% of adjusted financial statement income.
The corporate minimum tax is aimed at companies that pay less than the 21% corporate rate using tax loopholes. When a 15% minimum was proposed tax last year, its chief backers Sen. Elizabeth Warren (D-MA), Sen. Ron Wyden (D-OR) and Sen. Angus King (I-ME) singled out Amazon, noting that it paid 4.3% in federal tax on the $45 billion in corporate profits over the past three years.
Content and media companies also have had varying effective tax rates, which factor in deductions and state and local taxes. Netflix’s effective rate was 12.39% in 2021, while Comcast’s was 27.54%, according to CSI Market data.
Manchin just two weeks ago appeared to be dashing Democrats’ hopes of advancing Biden’s agenda, as he said that the chief focus should be on curbing inflation. With Democrats holding a bare majority in the 50-50 Senate, Manchin has wielded big influence over the party and White House agenda, as Republicans have signaled opposition to any major budget legislation. Democrats plan to advance the bill via a process called budget reconciliation, allowing them to avoid the 60-vote threshold to overcome a filibuster threat and pass a bill by simple majority.
Manchin said in a statement, “Rather than risking more inflation with trillions in new spending, this bill will cut the inflation taxes Americans are paying, lower the cost of health insurance and prescription drugs, and ensure our country invests in the energy security and climate change solutions we need to remain a global superpower through innovation rather than elimination.”
The agreement does not include a restoration of the state and local tax deduction, or SALT, that had been scaled back in 2017 under Republicans’ tax legislation. That had the effect of raising taxes on some residents in larger states like California and New York.
In a statement, Biden said that the agreement “is the action the American people have been waiting for. This addresses the problems of today — high health care costs and overall inflation — as well as investments in our energy security for the future.”
If the legislation passes the Senate, it would then have to pass the House, which last year passed a much larger, $1.9 trillion bill to expand the social safety net and address climate change. House Speaker Nancy Pelosi, in a letter to members, wrote that the Schumer-Manchin agreement was “a victory for America’s families and for protecting our planet.”
The legislation will be reviewed by the Senate parliamentarian in the coming days, Schumer said, with a vote expected next week.
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