The Senate on Sunday approved a sweeping package to combat climate change, lower health-care costs, raise taxes on some billion-dollar corporations and reduce the federal deficit, as Democrats overcame months of political infighting to deliver the centerpiece to President Biden’s long-stalled economic agenda.
Dubbed the Inflation Reduction Act of 2022, the package would authorize the biggest burst of spending in U.S. history to tackle global warming — about $370 billion to reduce greenhouse gas emissions to 40 percent below their 2005 levels by the end of this decade. The proposal also would make good on Democrats’ years-old pledge to reduce prescription drug costs for the elderly.
In part by tweaking federal tax laws — chiefly to target tax cheats and some billion-dollar companies that pay nothing to the government — the bill is expected to raise enough money to cover its new spending. Democrats say the measure is also expected to generate an additional $300 billion for reducing projected budget deficits over the next 10 years, though they have not yet furnished a final fiscal analysis of their legislation.
“This is one of the most significant pieces of legislation passed in a decade,” Senate Majority Leader Charles E. Schumer (D-N.Y.) said in an interview before the bill’s passage in the Senate. “Things that Americans have longed for, and couldn’t get done.”
The package is the byproduct of the political realities in the narrowly divided Senate, where Republicans stood immovably opposed to the bill and Democrats had to negotiate among themselves to shepherd it to the chamber floor. It hinged on a breakthrough deal negotiated in late July between Schumer and Sen. Joe Manchin III (D-W.Va.), a moderate who nearly eight months ago single-handedly scuttled a previous attempt to advance his party’s agenda. And its fate teetered at one point because of a last-minute snag with Sen. Kyrsten Sinema (D-Ariz.).
To assuage Manchin, Democrats had to give up some of their more ambitious plans — free prekindergarten for all, paid family and medical leave for workers nationwide — and offer new support for fossil fuels. To satisfy Sinema, meanwhile, party leaders repeatedly dialed back their proposed tax policies, particularly those targeting wealthy investors.
In the final hours of debate, Sen. Bernie Sanders (I-Vt.) tried unsuccessfully to restore some of the jettisoned proposals, including a significant expansion of Medicare to provide dental, vision and hearing coverage to the elderly. Delivering multiple fiery speeches, Sanders implored his colleagues to improve a bill that “does nothing” to address the greatest financial challenges facing families.
Repeatedly, though, Democrats rejected even ideas they once supported — leaving Sanders the lone aye vote on the amendments — as they labored to protect a compromise bill they saw as fragile. Many Democrats emphasized the need to overlook the losses and savor the gains in a package that weeks earlier had seemed out of reach.
“This is not Bernie’s bill. I understand that,” Manchin told reporters Sunday. “But it’s a piece of legislation that’s a tremendous piece of legislation. It’s a balanced approach.”
Republicans, meanwhile, lambasted their Democratic counterparts for the drug pricing program, massive climate spending and new tax policies. During nearly 19 hours of debate, GOP lawmakers alleged that the measure would worsen inflation at a time when prices already are rising at the fastest rate in four decades. They painted the tax provisions, in particular, as a threat to workers and their wages, even though the bill would not raise rates on individuals. And they unleashed a battery of unsuccessful amendments that forced Democrats to take uncomfortable votes on issues including immigration.
“It does nothing to bring the economy out of stagnation and recession. But rather, the Inflation Reduction Act of 2022 gives us higher taxes, more spending, higher prices — and an army of IRS agents,” Sen. Mike Crapo (Idaho), the top Republican on the tax-focused Senate Finance Committee, said, referring to a big infusion of cash that would be dedicated to staffing up the Internal Revenue Service.
For Senate Democrats, though, the outcome marks the latest victory in a spate of legislative accomplishments, including bipartisan efforts to rethink gun laws, improve veterans’ health care and boost the manufacture of much-needed high-tech computer chips. It comes two days after a federal labor report showed the U.S. economy had recovered all the jobs it had lost since the start of the coronavirus pandemic, a positive sign for the president as fears about a recession hover over Washington.
Even before the vote was final, Democratic lawmakers on the chamber floor rejoiced and cheered, shaking hands and hugging, as their Republican counterparts cast their votes and headed for the exits for a month-long summer break. Manchin made a beeline for Schumer’s desk, as the two men leaned their heads together and clasped their hands. Sen. Brian Schatz (D-Hawaii), a proponent of climate change provisions, broke into tears.
The developments offer fresh political fuel for Biden and Democratic leaders as they make their case to voters ahead of the midterm elections. The fast-approaching November contest serves as a referendum on Democratic control of Washington over the past two years — injecting urgency into Democrats’ once-defunct push to pass an economic package.
In a statement, Biden hailed the outcome and praised Democrats for having “sided with American families over special interests.” Acknowledging the “many compromises” that led to the vote, he encouraged the House to act swiftly. Lawmakers could take up the bill Friday.
The prescription drug pricing reforms aim to help cut costs for seniors enrolled in Medicare. It caps their out-of-pocket costs at $2,000 annually, while allowing the U.S. government to negotiate the price of a small set of medicines beginning in 2026. The landmark proposal is expected to save elderly Americans money and achieve billions in savings for Washington over the next decade. Pharmaceutical giants, which forcefully opposed the bill, also would be required to pay “rebates” to the federal government if they raise Medicare drug prices beyond the rate of inflation.
But Democrats did not accomplish everything they sought. An attempt to lower and cap the price of insulin, for example, faltered after Republicans on Sunday stripped it from the bill. Their opposition appeared to doom the plan for the remainder of the year, because a bipartisan attempt to reduce the cost of the lifesaving diabetes drug previously failed to secure GOP support.
“The reality is the cost of insulin is not just out of control; it is devastating people,” Sen. Patty Murray (D-Wash.) said before nearly every Republican voted to weaken the cap.
The bill also includes $64 billion to stave off health insurance premium increases for about 13 million Americans who buy coverage through state and federal exchanges under the Affordable Care Act. These beneficiaries currently receive discounted coverage under a coronavirus-era program set to expire this year, threatening them with premium increases into hundreds of dollars next month.
To respond to a rapidly warming planet, Democrats set aside about $370 billion for energy security and climate change. The investments include a bevy of tax credits to incentivize wind, solar and other renewable power sources, while helping people purchase new or used electric vehicles and install energy-efficient heating and cooling systems in their homes. The bill creates a $1.5 billion program that includes new payments for companies that cut emissions of methane, a potent greenhouse gas, with some penalties for those firms that do not.
While the new spending contributes greatly toward Biden’s emission-reduction goals, Democrats coupled it with additional provisions that boost fossil fuels — an approach necessary to win Manchin’s support. Democrats agreed to mandate new oil and gas leasing in the Gulf of Mexico and off the coast of Alaska, while party leaders committed to pursue a separate bill in the coming months that makes it easier for developers to override some environmental objections. That proposal could greatly benefit a long-stalled pipeline in Manchin’s home state, a trade-off that some Democrats described as an uncomfortable necessity.
“We made a deal with Joe Manchin, so there was always going to be something for fossil,” Schatz said, emphasizing that the bill would still reduce emissions by 40 percent over the next eight years. “It also has stuff I don’t like, but that’s the nature of getting a bill done that all of us can support.”
To pay for the spending, Democrats included a new tax on a set of large companies that currently pay nothing to the U.S. government, and added about $80 billion for the IRS to pursue those who dodge what they owe. They also approved a 1 percent tax on companies that buy back their own stock, a practice that many party lawmakers see as detrimental to the economy — to the benefit of wealthy shareholders and executives.
But the tax proposals are a far cry from what Democrats had envisioned, part of a last-minute effort to ensure the support of Sinema, another moderate in their ranks. The Arizona lawmaker agreed last week to vote for the measure after party leaders agreed to scale back the minimum corporate tax and scrap a separate plan to close a tax loophole for wealthy hedge fund, real estate and investment managers.
On Sunday, the senator intervened again, this time in a way that benefited private equity and the companies in their portfolios. That forced Democrats to rethink their minimum tax — and essentially carve out the industry — to retain her support.
A slew of similar compromises define the Inflation Reduction Act, which Democrats opted to move through the process known as budget reconciliation. The tactic allowed them to sidestep GOP opposition, avoid the normal 60-vote requirement to get past a Senate filibuster, and prevail with the support of their 50 members plus Harris’s tiebreaker.
The maneuver required Democrats to unite, giving moderates such as Manchin and Sinema outsize influence in the negotiations with the rest of their party, which supported a more ambitious economic package. The intraparty tensions have been on stark display since Democrats tried and failed to move a much larger, roughly $2 trillion plan known as the Build Back Better Act.
The precursor bill was vast in scope, provisioning child care, free community college for low-income Americans and subsidized health insurance, along with new provisions to ease immigration. Drawing its name from Biden’s 2020 campaign slogan, its backers — including Sanders, whose budget work helped enable the bill — saw it as the most ambitious legislation since the Great Depression.
But Manchin never supported the sky-high price tag, arguing that it might worsen the country’s fiscal health at a moment of great economic and political uncertainty. The House adopted the bill in November, but the Senate never considered it, as Manchin staked his public opposition — angering his party and drawing a rare rebuke from the White House.
“We were probably too aggressive,” said Sen. Mark R. Warner (D-Va.), a behind-the-scenes negotiator over the past year, reflecting on what went wrong. “The idea we were going to solve virtually every issue in one bill … was probably a bridge too far.”
By January, Democrats at Biden’s direction began rethinking the package, a set of negotiations led by Schumer. At times, they seemed on the verge of collapse — especially after Manchin said in July that he could not support a bill that raised taxes and spent money on climate change. Though he had supported some of those aims, Manchin cited the rising cost of groceries, gas and other goods as reason for his opposition.
Schumer and Manchin ultimately worked out their differences, solidified an agreement and sold it to a caucus that had hoped for something more robust. And after a year of failure and countless hours of bickering — and with an election less than three months away — Democrats were eager to take it.
“You could always say, ‘I wanted this, I wanted that,’ but we battled for decades,” said Sen. Ron Wyden (D-Ore.), the leader of the tax-focused Senate Finance Committee.
Paul Kane and Maxine Joselow contributed to this report.