Charles Schumer and Joe Manchin’s ‘Inflation Reduction Act,’ explained

The nonpartisan Committee for a Responsible Federal Budget estimates that the bill would put about $385 billion into combating climate change and bolstering U.S. energy production through changes that would encourage nearly the whole economy to cut carbon emissions. With the planet rapidly warming, Schumer and Manchin say the bill would reduce carbon emissions by roughly 40 percent by 2030, close to President Biden’s goal of cutting U.S. emissions by at least 50 to 52 percent below 2005 levels by 2030. Manchin also emphasized that it would spur American energy independence more broadly, including by encouraging natural gas, as the war in Ukraine has exposed domestic reliance on petrostates’ fossil fuel production.

The bill uses two main levers: major new incentives for private industry to produce far more renewable energy, and other incentives for households to transform their energy use and consumption. Democrats say this second set of incentives will also offer immediate consumer relief for the higher energy prices that have bedeviled the Biden administration.

The agreement would also raise roughly $470 billion through new tax provisions, the budget group estimates — the biggest of which will fall on the country’s large corporations. After years of rising concern about widening wealth inequality, Democrats failed in their efforts to repeal Republicans’ 2017 tax law. The new bill leaves intact most of the corporate and individual income tax cuts President Donald Trump signed into law, largely because Sen. Kyrsten Sinema (D-Ariz.) had insisted on leaving them untouched.

But it would still raise taxes significantly, and it would give the badly underfunded Internal Revenue Service its biggest budget increase in its history.

“This would certainly be the biggest corporate tax increase in decades,” said Steve Wamhoff, a tax expert at Institute on Taxation and Economic Policy, a left-leaning think tank. “We’ve had decades of tax policy benefiting the rich, but this is really the first attempt to raise revenue in a progressive way that would begin to combat wealth and income inequality.”

On health care, Democrats campaigned in 2020 on major changes, and this deal fulfills two major pledges: Allowing Medicare to negotiate the price of prescription drugs, and making health care more affordable for millions of Americans.

It falls short on plugging one of the biggest gaps of the Affordable Care Act and other key items long sought by the party’s more liberal members. Still, it amounts to the biggest changes to the health system in roughly a decade.

“This is the best development on health care for the American people in years,” Sara Lonardo, a spokeswoman for Families USA, a liberal consumer health lobby, said in a statement. “It’s crucial we get this deal locked down and passed as soon as possible. Once this bill is law, we will keep fighting to ensure the millions of Americans in the Medicaid coverage gap get the care they need to live their healthiest lives.”

The bill leaves out many key policy ambitions of Democrats — excluding, for instance, plans for new child care, housing, eldercare and paid-leave programs. But after months of gridlock and false starts, Democrats hope this agreement will finally become law.

Meanwhile, Republicans have started warning that the measure will hurt the U.S. economy with higher taxes as fears of a recession are growing. Steve Miran, who served as a senior official in the Treasury Department under President Donald Trump’s administration and is the co-founder of the investment fund Amberwave Partners, said the plan’s tax provisions would exacerbate inflation by leading to a decline in supply. “The current policy mix has already messed up the supply side, and hiking taxes will push further in the wrong direction,” Miran said. “In a world where demand outstrips supply and causes inflation, I don’t think attacking supply even further is the solution you’re looking for.”

But Democrats from Biden on down argued that the deal was a big step forward.

“If it sticks, this will be a huge policy win for the White House and the country, addressing both the president’s number-one short-run issue of inflation, and the number-one long-run issue: climate change,” said Jason Furman, who served as a senior economist in the Obama administration.

Here is a summary of what’s in the more than 700-page bill, according to Senate Democratic officials — and what’s not.