Senate Majority Leader Chuck Schumer and West Virginia Senator Joe Manchin released the outline of a tax, climate and health care deal on Wednesday, in what could prove to be major breakthrough after weeks of negotiations.
The proposal would raise an estimated $739 billion, with the revenues going to fund climate and health initiatives, as well as to reduce the budget deficit. While it would amount to the biggest tax hike in years, it’s far removed from the comprehensive, progressive revamp of the tax code the Biden administration once hoped for, and leave in place much of former Republican President Donald Trump’s 2017 tax-cut package.
It remains unclear whether the deal will be backed by the full Democratic caucus in the 50-50 Senate. It would also need to pass the House, where progressives sought a much bigger plan. Democrats are aiming to vote on the so-called reconciliation bill, which needs a simple majority to pass, before a recess starting in August.
Corporate Taxes
The bill imposes a 15% minimum corporate levy on companies that have traditionally been able to pay little-to-no taxes because they were eligible for a long list of credits and deductions. This measure is known as the book tax, because it is applied to a company’s book, or financial-statement, earnings — rather than the income calculation traditionally used for tax purposes. The regular, 21% corporate rate is left untouched, maintaining a key part of Trump’s 2017 tax law.
IRS Enforcement
The Internal Revenue Service would get additional money to add auditors, improve customer service and modernize technology. Democrats hope to pull in $124 billion in tax revenue from cracking down on tax cheats and increasing compliance by rebuilding the IRS. The agency has lost staff and expertise over the past decade because of budget cuts.
Carried Interest
The plan would end the carried-interest tax break used by private equity and hedge fund managers to lower their tax bills. That allowed for a share of an investment manager’s income to be classified as a capital gain, which is taxed at 23.8% instead of the top 37% rate for salary and wage earnings.
Energy and Climate
A summary of the plan includes $369 billion to lower energy costs, expand cleaner production, and reduce carbon emissions by roughly 40% by 2030 — but didn’t give any specifics about how the bill would meet those objectives. Funding in the bill provides for a slew of new and expanded tax credits for power sources that include wind, solar, nuclear, geothermal and hydrogen, along with carbon capture, according to a person familiar with the matter.
Drug Prices
The bill would direct the government to negotiate with drugmakers for lower prices on certain medicines, and cap what seniors on Medicare pay for drugs each year at $2,000.
Obamacare Premiums
The plan would also extend to 2025 an expansion in Affordable Care Act premium subsidies that’s currently set to end at year-end. This will lower prices for millions of Americans, according to a summary of the deal.