What to know before the end of the week
While the corporate tax, carried interest, IRS funding, green energy tax credits, ACA premium support, and prescription drug pricing negotiation provisions have garnered most of the media attention related to the Inflation Reduction Act, there are several other provisions that were included in the original agreement that have not garnered as much attention but that we thought might also be of interest to you. The full repository of documents produced by Senate Democrats to date can be found here.
Timing remains slightly less clear. We know that the text of the bill has been submitted to the Parliamentarian for what is known as a “Byrd bath.” The Parliamentarian is now assessing whether each provision meets the requirements for reconciliation. We expect that as each section of the bill passes the “Byrd bath,” it will head to the Senate floor, where it faces a “vote-a-rama.” During a “vote-a-rama,” Senators can offer as many amendments as they’d like in a 72 hour window. The minority party typically does this to slow down the process and to force the majority party to take tough votes. Senate Democrats are optimistic that this process can begin as soon as Friday. If the measure passes the Senate (we still have yet to hear from Sen. Kyrsten Sinema, who is a perpetual swing vote for Democrats), the House will likely take up the bill next week.
A high-level rundown of them follows, and we are standing by to answer any questions or provide additional information as it becomes available.
Changes to Business Operations
- 15% minimum tax on book income on corporations with at least $1 billion or more in annual average income over three years. Corporations would pay the larger of the minimum tax or 21%, whichever is larger.
- Requires investment funds to hold assets for five years instead of three years to receive carried interest. It effectively eliminates the tax break that allows for the share of a manager’s earnings to be taxed as a capital gain, with a maximum 23.8% rate for long-term gains, instead of as ordinary income, with a maximum 37% rate.
- Joint Committee on Taxation estimates it will yield $13 billion over a decade
- Appropriates nearly $80 billion to the IRS to increase tax enforcement. It specifies that the IRS boost isn’t intend to increase taxes on anyone making less than $400,000.
- CBO expects it to yield $203 billion over a decade.
- Green Energy: Some examples of green energy tax credits include:
- Production Tax Credit for electricity generated from renewable energy sources (and would be increased for facilities located in “energy communities”).
- Investment Tax Credit for investments in renewable energy property, which includes investments in energy storage and microgrid controllers. There would be an added bonus for wind and solar in low-income communities.
- A new credit for the production of clean hydrogen.
- Production and investment credits related to clean electricity, based on carbon emissions.
- Credits for advanced energy projects (including support for a program to award certifications for qualified investments in energy manufacturing facilities)
- Some tax credits that would be extended include:
- Credits for carbon capture facilities
- Credits for qualified energy efficiency improvements for residential energy property
- A deduction for energy efficiency commercial buildings
- Electric Vehicles: Provides $7,500 to individuals for purchases of qualifying electric vehicles (must have battery components extracted or recycled in North America or a country with which the U.S. has a free trade agreement). Phases out at $300,000 for joint filers and $150,000 for single filers. It also creates a credit for used clean vehicle and for commercial-sized clean vehicles.
ACA Premium Tax Credit
- Extends through 2025 the temporary expansion of the Affordable Care Act (ACA) health insurance premium credits.
- The reconciliation bill contains a provision that would enable the Medicare agency to negotiate the prices for certain costly medications under Medicare Part D) or Part B. Price negotiation would begin in 2026, with the number of negotiated drugs limited to 10 to 15 drugs each year, then 20 in 2029 and beyond. It would require the department to negotiate the maximum number of drugs eligible each year.
- The measure would specify that the maximum price wouldn’t apply until nine years after a drug has been on the market and 13 years for biologics, reflecting additional time that would be included for negotiations.
- A percentage of the average price determined by years on the market — 75% for those 9 to 12 years old, 65% for those 12 to 15 years old, and 40% for those more than 16 years old or more.
- A plan-specific enrollment weighted price for Part D drugs or average price for Part B drugs.
- Drugmakers would have to repay the government the difference in profits above the cost of inflation on Part B and Part D drugs if they raise the price of a drug above inflation, beginning 2023.
- The measure would also cap the out-of-pocket cost of prescription drugs under Medicare Part D for beneficiaries at $2,000 a year starting in 2025. That amount would increase with the annual percentage increase in average per capita expenditures for covered Part D drugs in the US. The measure also would allow enrollees to pay in monthly amounts. The bill would cap the coinsurance rate for beneficiaries under the out-of-pocket cap beginning in 2025 and reduce the coinsurance rate that beneficiaries pay in the initial coverage phase to zero starting in 2024.
- The bill would also reduce the amount the government pays in reinsurance rates beginning in 2025 after an individual meets their out-of-pocket cap to between 20% and 40%, from 80%, of the allowable portion of gross covered prescription costs. Those costs would be subject to the new drug pricing provisions implemented by the bill.
- The measure would also direct HHS to enter agreements with drug manufacturers to provide discounts on certain drugs beginning 2025.
- The measure would permanently block the drug rebate rule published under former President Donald Trump in November 2020.
- The legislation would require coverage of vaccines with no cost-sharing under Medicare Part D. It also would retroactively reimburse Medicare Advantage plans the lost cost-sharing for 2023.
Energy Spending & Greenhouse Gas Emissions
- The bill would generally increase the royalty rate for new offshore oil and gas leases from 12.5% to a range from 16 2/3% and 18 3/4%.
- The measure would provide $4.3 billion for fiscal 2022 for the Energy Department to implement a “Home Owner Managing Energy Savings” or HOMES rebate program.
- The measure would provide $4.28 billion for fiscal 2022 for grants for states to implement a high-efficiency electric home rebate program. It would provide an additional $225 million for tribes to implement a similar program.
- The bill would provide $5 billion for fiscal 2022 for DOE to make as much as $250 billion in loans or refinancing guarantees.
- The measures would allow DOE to make as much as $40 billion in loan guarantees for projects to reduce, avoid or sequester GHG emissions and air pollutants through fiscal 2026. It would provide $3.6 billion for the costs of making guarantees.
- The bill would provide $12 billion for fiscal 2022 for the Environmental Protection Agency to provide financial and technical assistance on projects to reduce greenhouse gas emissions. An additional $8 billion for fiscal 2022 would be provided for grants to offer assistance on GHG reduction projects in low-income and disadvantaged communities.
- It would provide $7 billion for fiscal 2022, for EPA to make grants to states, municipalities, tribes, and nonprofits to enable low-income and disadvantaged communities to adopt and benefit from zero-emission technologies. The bill would also provide $250 million for fiscal 2022 for grants to states, air pollution control agencies, municipalities, and tribes to establish plans to reduce GHG pollution. A further $4.75 billion would be provided to award grants to implement those plans.
- Other energy funding includes:
- $2 billion for National Labs.
- $760 million for grants to state, local, or tribal governments to facilitate interstate electricity transmission lines.
Manufacturing & Ports
- The measure would provide $5.8 billion for fiscal 2022 for DOE to provide financial assistance for domestic, nonfederal, nonpower industrial or manufacturing facilities engaged in energy intensive industrial processes to purchase, install, retrofit or upgrade advanced industrial technology to reach net-zero GHG emissions.
- The bill would provide $2.25 billion for fiscal 2022 for grants and rebates for port authorities, air pollution control agencies, private entities, and governments with jurisdiction over ports to install zero-emission port equipment or technology. Awards could also be used to develop climate action plans to reduce GHGs and other air pollutants. An additional $750 million would be provided for ports in areas that don’t meet national ambient air quality standards.
- An additional $2.8 billion would be provided for fiscal 2022 for EPA to provide environmental and climate justice grants for community-led projects to reduce GHG emissions and mitigate climate and health risks.
- The measure would provide $1.89 billion for fiscal 2022 for the Federal Highway Administration to provide grants to states, local governments, territories, or transportation authorities to increase neighborhood access and transportation equity, or reduce the negative effects of infrastructure projects in disadvantaged or underserved communities. A further $1.11 billion for fiscal 2022 would be provided for additional grants to economically disadvantaged or underserved communities that adopt anti-displacement policies or community land trusts.
- The bill would provide $2 billion for fiscal 2022 for the Federal Highway Administration to reimburse or provide incentives to states, local governments, metropolitan planning organizations, and public authorities to use materials produced with lower-carbon emissions.
- $2 billion would be provided for fiscal 2022 to provide grants for domestic production of efficient hybrid, plug-in electric hybrid, plug-in electric drive, and hydrogen fuel cell electric vehicles.
- The measure would provide $600 million for fiscal 2022 to establish a clean heavy duty vehicle program providing grants and rebates to states, municipalities, tribes, and nonprofit school transportation associations to replace certain heavy duty vehicles with zero-emission vehicles. Another $400 million would be provided for similar grants specifically for projects in communities that don’t meet national ambient air quality standards.
- The Postal Service would receive $3 billion for purchasing electric delivery vehicles and installing the necessary infrastructure to support the vehicles at USPS facilities.