Analysis deems Biden’s climate and tax bill fiscally responsible
By Jim Tankersley
After more than a year of trying — and failing — to pack much of President Joe Biden’s domestic agenda into a single tax-and-spend bill, Democrats appear to have finally found a winning combination. They have scrapped most of the president’s plans, dialed down the cost and focused on climate change, health care and a lower budget deficit.
As soon as party leaders announced that new bill last week, Republicans began attacking it in familiar terms. They called it a giant tax increase and a foolish expansion of government spending, which they alleged would hurt an economy reeling from rapid inflation.
But outside estimates suggest the bill would not cement a giant tax increase or result in profligate federal spending.
An analysis by the Joint Committee on Taxation, a congressional nonpartisan scorekeeper for tax legislation, suggests that the bill would raise about $70 billion over 10 years. But the increase would be front-loaded: By 2027, the bill would actually amount to a net tax cut each year, as new credits and other incentives for low-emission energy sources outweighed a new minimum tax on some large corporations.
That analysis, along with a broader estimate of the bill’s provisions from the nonpartisan Committee for a Responsible Federal Budget, suggests that the legislation, if passed, would only modestly add to federal spending over the next 10 years. By the end of the decade, the bill would be reducing federal spending, compared with what is scheduled to happen if it does not become law.
And because the bill also includes measures to empower the IRS to crack down on corporations and high-earning individuals who evade taxes, it is projected to reduce the federal budget deficit over a decade by about $300 billion.
Adding up the headline cost for what Democrats are calling the Inflation Reduction Act is more complicated than it was for many previous tax or spending measures that lawmakers approved. The bill blends tax increases and tax credits, just as Republicans did when they passed President Donald Trump’s signature tax package in 2017. But it also includes a spending increase meant to boost tax revenues and a spending cut meant to put more money in consumers’ pockets.
The bill springs from an agreement between Sen. Chuck Schumer, D-N.Y., the majority leader, and Sen. Joe Manchin of West Virginia, a key centrist Democrat. Biden blessed it last week, and it carries what remains of what was once his $4 trillion domestic agenda.
Its centerpiece is a package of measures meant to fight climate change by encouraging transitions to lower-emission sources of energy, along with expanded health insurance subsidies and a move to reduce prescription drug costs for seniors by allowing Medicare to negotiate the prices.
Over a decade, the centerpiece provisions of the deal include about $68 billion in net tax increases, according to the Joint Committee’s modeling. The bill would impose a new 15% minimum tax on corporations that report a profit to shareholders but use deductions, credits and other preferential tax treatments to reduce their effective tax rate well below the statutory 21%. It would also narrow the benefits of the so-called carried interest tax provision, which largely benefits high earners who work in private equity and other parts of the financial industry.
The Joint Committee estimates those provisions would raise about $326 billion over a decade in new tax revenue. That is a tax increase on companies that take advantage of current tax law, even though Democrats such as Manchin and Schumer insist that it is not.
Much of that increase would be offset, overall, by tax credits for clean-energy initiatives such as electric vehicle purchases, renewable electricity generation and other carrots meant to reduce the fossil fuel emissions driving climate change. That would amount to tax cuts for some people, companies and electric utilities.
The spending side of the bill has shrunk drastically from Biden’s initial ambitions, which included large investments in home health care, universal prekindergarten, community college tuition, and an array of other measures meant to help workers and students.
The current deal has stripped that spending down to what appears to be somewhere north of $100 billion in climate programs — the exact amount is unclear because the Joint Committee and the Congressional Budget Office have not published a full accounting of the bill’s provisions — and about $100 billion in additional health care spending. That includes three years of enhanced subsidies for people to buy insurance through the Affordable Care Act.
It also includes more money for IRS enforcement, which the Congressional Budget Office projects would more than pay for itself, bringing in more than $100 billion in net additional tax revenue over a decade as the agency became better able to collect the taxes that people and companies already owed.
The Committee for a Responsible Federal Budget estimates that almost all of that spending would be offset over a decade by reductions in federal health care spending spurred by the bill, including the centerpiece effort to allow Medicare to negotiate drug prices.
Both the committee and the University of Pennsylvania’s Penn Wharton Budget Model project that over a decade, the total effect of those changes would reduce federal budget deficits. The committee estimates the savings at just over $300 billion but says they could be even greater if the IRS crackdown works better than the Congressional Budget Office expects. Penn Wharton pegs the deficit reduction at about $250 billion.