Author: Maz Hadaegh, Chair of Iranian American Democrats of San Diego
The Inflation Reduction Act of 2022:
On August 12, 2022, the House passed the Inflation Reduction Act (IRA) on party line vote of 220-207. This followed the passage of the bill in the Senate on August 7, 2022, with a 51–50 vote, with all Democrats voting in favor, all Republicans voting against, and Vice President Kamala Harris casting the tie breaking vote. The $700+ billion bill is a scaled down version of the once $3.5 trillion Build Back Better Act that passed the House last November (after being scaled down to $1.75 trillion) but failed to move forward in the Senate following opposition from conservative Democrats, most visibly, Sen. Joe Manchin (D-WV) and Sen. Kyrsten Sinema (D-AZ).
The original Build Back Better included significant, very popular, and much overdue social investments including childcare, universal preschool, a child tax credit extension (which had single-handedly cut down child poverty by 50% up until its expiration), home care, free community college, housing, Medicare expansion (hearing, vision, and dental coverage), and more. Sadly, none of these investments in “human infrastructure” was included in IRA even though they were Democratic campaign promises in the 2020 election.
While there is plenty to criticize about the substance of IRA and the process that got us here, it does include several important “firsts” and represents a positive step considering the current political reality where Republicans lawmakers will firmly stand against anything that helps regular people and many Democratic lawmakers who have a very narrow majority, are too timid about bold legislation if it risks upsetting their big corporate donors. With that in mind, here are the key components of IRA (not an exhaustive list) including the good and the bad.
Energy and Climate
IRA includes $369 billion in energy security and climate change investments with the goal of reducing carbon emissions by 2030. It does this in a variety of ways including tax credits for residential rooftop solar panels, $7,500 on new EVs and other measures. This is all welcome news especially considering how late and timid our federal government’s response has been in fighting climate change. On the negative side, IRA takes an “all of the above” energy approach which includes several giveaways to the fossil fuel industry – among them the reinstatement of a recent offshore oil and gas lease sales that was struck down on environmental grounds, new lease sales for oil and gas production on public lands, and more. These provisions were inserted in large part to appease Sen. Manchin whose conflicts of interest includes receiving $5.2 million in dividends from Enersystems (a fossil fuel company he founded) and being the top recipient of campaign contributions from the fossil fuel industry.
IRA empowers Medicare to negotiate drug prices starting in 2026 (a longstanding Democratic campaign promise), caps the out-of-pocket drug expenses to $2,000 per year and insulin costs to $35 per month. While the prescription drug pricing provision is not as ambitious as earlier iterations, it is estimated to save $288 billion over ten years. This is also welcome news especially considering the stranglehold the pharmaceutical industry has had (and continues to have) on politicians. The original bill would have extended the drug pricing to people on private insurance plans (i.e., most Americans and the vast majority of those under 65), but thanks to a parliamentarian ruling, that provision was struck down. The Senate Majority Leader Chuck Schumer (D-NY) could have fired the parliamentarian for this advice, but chose not to, likely because he is the #2 recipient of pharmaceutical campaign money in the Senate. Unfortunately, the pharmaceutical industry now has a new pretext to further inflate drug prices on private insurance plans using the false claim that their Medicare business is insufficiently profitable.
IRA includes a 15% corporate minimum tax on corporations making $1 billion or more in profit per year. This is another piece of welcome news especially considering how many large corporations have mastered the art of tax dodging by paying zero or nearly zero in taxes even while being extremely profitable. The corporate minimum tax is estimated to increase federal revenue by $288 billion over ten years plus an additional $124 billion revenue from increased IRS enforcement to go after tax cheats. The Biden administration has indicated that the enforcement will target those making over $400,000 per year which is good, but it remains to be seen how future administrations will enforce this. On the negative side, a loophole was added thanks to Sen. Sinema and 6 Democratic Senators (under the influence of their private equity donors) voting for a Republican amendment to exempt private-equity firms from the 15% corporate minimum tax, in addition to dropping an attempt to close the carried-interest loophole. This was a $35 billion gift to the private equity industry.
Despite all its flaws and compromises, IRA is still a net positive for Medicare recipients, the federal budget, and the planet. It may also improve the Democrats’ electoral chances in 2022 and 2024 assuming enough people start to see its impact. It has the largest federal investment in clean energy, first time Medicare is empowered to negotiate drug prices, and the first time that large corporations will pay a minimum corporate tax. However, it could have been much better. It is a reminder for voters that who they send to Congress matters, not just whether they have a “D” next to their names. By electing members of Congress who refuse to accept corporate PAC money, they make it more likely that those representatives work for them (regular people), and not the wealthy mega-donors who fund their campaigns. It is also a reminder that voting is necessary but not sufficient. Voters should be informed, engaged, and hold their elected leaders’ feet to the fire on their campaign promises.