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And End to the Build Back Better Saga

After more than a year of intraparty negotiations, Democrats are on the cusp of enacting the Inflation Reduction Act.

After negotiations that lasted more than a year, on August 7 the U.S. Senate approved the Inflation Reduction Act (IRA), a bill that bears only slight resemblance to the American Families Plan/Build Back Better bill that began the budget reconciliation saga in 2021. The Senate vote on the IRA was 51-50 with Vice President Kamala Harris casting the tie-breaking vote. Sen. Kyrsten Sinema (D-Ariz.) and Sen. Joe Manchin (D-W.Va.) also provided critical support that enabled Senate Majority Leader Chuck Schumer (D-N.Y.) to bring the bill to the chamber floor in the first place.

As a reminder, the House had passed a budget reconciliation bill — the Build Back Better plan — in November 2021. Because that piece of legislation is substantially different than the IRA, House lawmakers will have to take an IRA vote of their own — something they are expected to do this Friday, in fact.

What is the difference between the House and Senate legislation, and how is the House debate likely to go? Let’s take a look.

What Is in the Senate-approved Inflation Reduction Act?

The IRA authorizes $430 billion in spending and would raise taxes by nearly $400 billion. (According to the Joint Committee on Taxation, corporations will pay roughly $296 billion in additional taxes over the next decade.)

By contrast, the American Families Plan, the White House’s human infrastructure precursor to Build Back Better, would have cost $1.8 trillion. As the law firm Holland & Knight explained, it would have increased the top personal income tax rate, raised estate and gift taxes, applied a Medicare surtax to wealthy individuals, eliminated the carried interest rule, and more. Like the IRA, it also would have enhanced Internal Revenue Service (IRS) enforcement.

The legislation passed by the Senate this past Sunday is much narrower. Specifically, the Investment Reduction Act:

  • Creates a 15 percent corporate minimum tax for corporations that earn more than $1 billion each year.

  • Puts in place a one percent excise tax on stock buybacks.

  • Boosts spending for IRS enforcement by $80 billion.

  • Contains more than $300 billion in clean energy programs, the largest investment in U.S. history.

  • Starting in 2026, allows the secretary of the U.S. Department of Health and Human Services to negotiate the prices for 10 different drugs purchased by Medicare. That number would increase to 20 in 2029. After the Senate parliamentarian ruled the measure out of order, Democrats had to eliminated insulin as one of the negotiated drugs. The price ceilings do not apply to private insurers.

  • Extends Affordable Health Care Act insurance subsidies, which would keep premiums at about $10 a month for most people who get health insurance through Obamacare.

The IRA is about one-third the size of the Build Back Better plan that was approved by the House on November 18, 2021. As PricewaterhouseCoopers explained, that legislation had a net cost of $1.7 trillion over 10 years. It would have expanded the child tax credit, made more than $550 billion in clean energy investments, and increased spending on a broad range of domestic programs, including housing, healthcare, education, childcare, and other programs. That legislation would have increased the corporate income tax in general, imposed a surtax on wealthy individuals, set up a controversial international tax system, and more.

While we do not expect the House to make significant (if any) changes to the Senate-passed IRA, that does not mean the rest of the week and the floor debate will be without tension.

Will the House Add SALT to the Senate’s IRA?

During the Senate debate this past weekend, Sen. John Thune (R-S.D.) successfully added an amendment to the IRA that exempted the portfolio companies of investment funds from the bill’s 15 percent corporate minimum tax. The amendment would have paid for that provision by extending for one year the $10,000 cap on state and local tax (SALT) deductions put into place in 2017. I say “would have” because the Thune amendment then was amended to eliminate the SALT cap extension and replace it with a provision to extend current limits on pass-through business loss deductions.

Had Sen. Thune’s amendment survived, it almost certainly would have led to the IRA’s demise. (Something Sen. Thune certainly knew.)

As readers might recall, the SALT deduction cap has been a major pain point for House Democrats as they have tried to get budget reconciliation to the finish line. For months, a group of lower chamber lawmakers from high-tax states like California, New Jersey, and New York have pledged to vote against any budget reconciliation bill unless it eliminated the cap. While they dropped those demands after Sen. Manchin and Sen. Sinema agreed to support the IRA, extending the cap for another year would have … well … added SALT to those lawmakers’ still-exposed wounds.

House Speaker Nancy Pelosi (D-Calif.) has asked her caucus to vote for the IRA without any changes. Yesterday, the House lawmakers who had fought so hard for an end to the SALT limits reiterated that they would support the Senate-passed legislation without amendment.

“This bill doesn’t raise taxes one penny on families or small businesses in my district,” said Rep. Josh Gottheimer (D-N.J.), one of the chief opponents of the SALT deduction ceiling. “We also stopped those in red states trying to further gut SALT, and those who wanted to raise taxes on individuals and small businesses in Jersey. The bill will actually save people thousands of dollars on prescription drugs, energy and health care costs. We won.”

Republicans pounced on Rep. Gottheimer’s reversal. “What a convenient reminder for New Jersey voters right before the midterms that Josh Gottheimer and Tom Malinowski are incapable of delivering for their constituents and are ultimately beholden to Nancy Pelosi and Joe Biden when it matters,” Samantha Bullock, spokesperson for the National Republican Campaign Committee, said in a statement to Politico.

Does the elimination of SALT worry mean House approval is a certainty? Not so fast.

Protocol reports that votes aren’t “quite tied up yet” in the House and that a right-leaning group is running ads to try to convince progressives in the chamber to vote against the bill.

Even without the GOP group’s pressure, progressives are not happy with the IRA. In a floor speech over the weekend, Sen. Bernie Sanders (I-Vt.) said, “This legislation does not address the reality that we have more income and wealth inequality today than at any time in the last hundred years … This bill does nothing to address the systemic dysfunctionality of the American health care system.”

He also argued the IRA would not do anything to address inflation. That said, Sen. Sanders did ultimately vote in favor of the bill.

Polling on the Inflation Reduction Act

The fact is, House Democrats are still in a perilous election position. Very few commentators think the party will hold onto control of the chamber after this November’s midterm elections.

They could use a legislative win.

According to the limited polling available on the IRA, passage of the bill could be the win Democrats need a couple months out from the election.

A Morning Consult poll found a majority of voters support all of the major components in the IRA. That includes more than 70 percent of Republicans who support the caps on drug prices that are in the bill. Nearly half of Republicans, 48 percent, even support the corporate minimum tax.

According to a survey by Navigator, union household members and college-educated women are among the IRA’s biggest supporters. Turnout for these two groups will be important for Democrats this fall.

A survey by left-leaning groups Data for Progress and Climate Power also found voters support the bill. According to that poll, 95 percent of Democrats support the IRA, along with 73 percent of Independents, and 52 percent of Republicans. That survey also found sending the IRA to President Joe Biden could help Democrats keep the House. Specifically, 64 percent of voters said they would be more likely to vote for a candidate who supports the IRA.

Those numbers come despite the fact that other surveys show most Americans do not believe the Inflation Reduction Act will do a single thing to actually reduce inflation.

House progressives may not have kind words for the IRA this week or come Friday, but if they believe their prospects of keeping the House — and getting more legislative wins later on — will improve if they vote for the bill, they will cast a yes vote.

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