Analysis deems Biden’s climate and tax bill fiscally responsible
Package would ease deficit, arm IRS on scofflaws
After more than a year of trying — and failing — to pack much of President Biden’s domestic agenda into a single taxand-spend bill, Democrats appear to have finally found a workable 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 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 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.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said the composition of the deal was vastly different from a larger bill that Democrats failed to push through the Senate in the fall. It included several spending programs that were set to expire after a few years, and budget hawks warned that the overall package would add heavily to federal debt if those programs were eventually made permanent, as Washington has been known to do, without offsetting tax increases.
MacGuineas called the original idea, known as Build Back Better, “a massive gimmicky budget buster.” She had kinder words for the new package, saying it “manages to push against inflation, reduce the deficit, and, once fully phased in, it would actually cut net spending, without raising net taxes.”
“That is a pretty monumental improvement,” she said.
The bill springs from an agreement between Democratic Senators Chuck Schumer of New York, the majority leader, and Joe Manchin of West Virginia, a key centrist. 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 percent 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 percent. 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.