(Bloomberg) -- The Senate passed a landmark tax, climate and health-care bill, speeding a slimmed-down version of President Joe Biden’s domestic agenda on a path to becoming law after a year of Democratic infighting that the White House was unable to control.
The vote on the bill was 51 Democrats in favor to 50 Republicans against, with Vice President Kamala Harris casting the tie-breaking vote after an overnight marathon of votes on amendments. It now goes to the House, where the Democratic majority is expected to pass it on Friday.
Democrats called the bill the largest investment in fighting climate change ever made in the US, and it’s projected to help cut greenhouse gas emissions by about 40% from 2005 levels by the end of the decade. They applauded and hugged during the vote on final passage.
“I told my caucus all along, including the most pro environmental people, that we’re going to have to swallow some bad stuff to get good stuff,” Senate Majority Leader Chuck Schumer said after the vote. “But my North star was always 40% reduction in the amount of carbon going into the atmosphere.”
The legislation also aims to prevent large corporations from exploiting tax breaks to pay little if any tax, and it would allow Medicare to negotiate drug prices for the first time. It’s forecast to make the first substantial cut to budget deficits in more than 10 years.
Biden applauded Senate Democrats for pushing it through to passage.
“It required many compromises. Doing important things almost always does,” Biden said in a statement hailing the vote.
Republicans, united in opposition, argued it wouldn’t stop the historic levels of inflation and would impose taxes that could tip the US economy into recession.
Senate GOP leader Mitch McConnell argued that “hundreds of billions of dollars in tax hikes during a recession will kill jobs.”
The Senate vote was the culmination of a year and half of intra-party squabbling among Democrats about the scope of the bill, which Biden had once hoped would be so sweeping as to rival Franklin Delano Roosevelt’s New Deal. In the end it came down to two holdout moderate Democrats, Senators Joe Manchin and Kyrsten Sinema, whose votes were essential in the 50-50 Senate and who balked at both larger tax increases and more spending.
The deal that revived the bill was primarily hammered out on Capitol Hill, mainly between Schumer and Manchin, while an administration official Sunday said the president and top White House officials had been involved in keeping the effort alive behind the scenes, including regular contacts with Schumer and Manchin’s offices.
The legislation was passed through reconciliation, a Senate procedure that exempts certain tax and spending measures from a filibuster and requires only a simple majority to pass.
Trimmed from its original $6 trillion price tag to one of around $437 billion, the bill will nonetheless be a cornerstone achievement of Biden’s first term and one Democrats are eager to campaign on before the November midterms where they are fighting to retain control of Congress.
Key elements of the legislation:
- Medicare would be allowed to negotiate drug prices, starting with 10 high-priced drugs by the middle of this decade and expanding from there. It would cap out-of-pocket drug costs for seniors enrolled in Part D at $2,000 per year. The Senate parliamentarian spared drugmakers any penalties for increasing prices in the commercial market. The savings to Medicare will be used to pay for three years of subsidized Obamacare premiums.
- The bill allows roughly $374 billion in climate and energy spending such as expanded tax credits for renewable energy projects. It ends per-manufacturer limits for the $7,500 tax credit for electric vehicle purchases, a boost for electric vehicle makers like Tesla Inc. But the vehicles will have to be built in North America and carmakers will have to quickly end a reliance on China for the battery supply chain. Some automakers like Ford Motor Co. and General Motors Co. lobbied to make changes to the credit.
- Government revenue will be raised from the establishment of a 15% corporate minimum tax on large firms, a 1% excise tax on the value of stock buybacks and an $80 billion boost to the Internal Revenue Service for enforcement.
- The minimum corporate tax would affect fewer than 150 companies in a given year. Tech companies such as Alphabet Inc.’s Google and Meta Inc.’s Facebook could face the levy. Last-minute changes narrowed its scope in an effort to protect private equity, as well as businesses that invest heavily in equipment and facilities, such as manufacturers.
- The tax on stock buybacks has largely been shrugged off by Wall Street analysts, though some have noted it could spur corporations to issue dividends over repurchasing shares to juice equity prices. Apple Inc., JP Morgan Chase & Co. and Microsoft Corp. have relied on share repurchases as a strategy to boost stock prices in recent years.
The taxes increases are noteworthy for who isn’t affected. Democrats and Biden ran on reversing former President Donald Trump’s 2017 tax cuts, including the corporate rate, which remain untouched. High-earners, including millionaires and billionaires, won’t face higher taxes, either.
Sinema demanded that the bill retain the carried interest tax break for private equity. That request irked many of her fellow Democrats who say there is little justification to provide tax benefits to highly paid investment managers.
The bill also doesn’t address two key priorities for many Democrats: implementing a 15% global minimum tax deal that Treasury Secretary Janet Yellen negotiated with nearly 140 countries last year and increasing the $10,000 cap on the state and local tax deduction, or SALT. With Democrats likely to lose a majority in at least one chamber of Congress next year, it’s unclear if either proposal can pass.
Still, Democrats indicated they were satisfied with the outcome. Schumer said the party has been talking about lowering drug prices and curbing climate change for years to little avail.
“This is America’s first real push to fight back in the climate crisis. This is the first time that we have just opened the door for Medicare to be able to negotiate with prescription drug companies,” Massachusetts Democrat Elizabeth Warren said after voting. “And this is the first time that we have said billion-dollar-plus corporations are going to have to pay a minimum tax. All three of those are historic.”
(Updates to add Biden administration efforts in 11th paragraph.)
©2022 Bloomberg L.P.
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