How the Inflation Reduction Act might impact you

WASHINGTON — Major changes to the Affordable Care Act. The nation's biggest-ever climate bill. The largest tax hike on corporations in decades. And dozens of lesser-known provisions that will affect millions of Americans.

The legislation Democrats on Sunday muscled through the Senate would represent one of the most consequential pieces of economic policy in recent U.S. history — though still far smaller than the $3 trillion the Biden administration initially sought.

The nonpartisan Committee for a Responsible Federal Budget estimates 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. Senate Majority Leader Charles Schumer, D-N.Y., has said the bill would reduce carbon emissions by roughly 40 percent by 2030, close to President Joe Biden's goal of cutting U.S. emissions by at least half below 2005 levels.

The agreement would also raise hundreds of billions in new revenue through new tax provisions — the biggest of which will fall on the country's large corporations. Democrats failed in their earlier efforts to repeal Republicans' 2017 tax law.

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

But the prescription drug provisions were dialed back over the weekend after the Senate's parliamentarian ruled that Democrats' attempt to limit some drug prices to the rate of inflation ran afoul of the procedure the party used to pass the bill with a simple majority and bypass a filibuster. Republicans also defeated an attempt to set a broad price cap on insulin.

The bill also left 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, the House is expected Friday to give final approval.

Republicans have warned that the measure will hurt the economy with higher taxes as fears of a recession are growing. Steve Miran, who served as a senior official in the Treasury Department in the Trump administration, said the plan's tax provisions would exacerbate inflation by leading to a decline in supply.

Here is a summary of some of what's included in the bill, according to Senate Democratic officials:

1. $260 billion in clean-energy tax credits

New and extended credits would incentivize solar, wind, hydropower and other sources of renewable energy. Private firms and publicly owned utilities could get tax subsidies both for the production of renewable energy and for manufacturing a specific part essential to a renewable project, such as wind turbines or solar panels. The goal? To make new green energy production cheaper for utilities to build than fossil fuel plants are.

2. $80 billion in new rebates for electric vehicles, green energy

Buyers of new electric vehicles would get a $7,500 tax credit applied at the point of sale. That would also apply to vehicles whose manufacturers are no longer eligible for an existing EV credit, such as Tesla and General Motors. Couples who earn less than $300,000 a year or individuals who earn less than $150,000 would be eligible. A $4,000 tax credit would also apply to purchases of used EVs. Tens of millions of people will qualify for the credits.

Other consumer rebates would subsidize the installation of more-efficient heat pumps and water heaters, up to as much as $14,000 in total rebates. Installation of home solar panels would be eligible for a 30 percent credit until 2032, when that would drop to 26 percent through 2034. Additional consumer subsidies include $840 for an electric induction cooktop and up to $9,100 for improvements to electric panels, wiring and home insulation.

3. $1.5 billion in rewards for cutting methane emissions

A Methane Emissions Reduction Program would reward oil and gas companies that slash their emissions of methane and penalize those that don't. The program, crafted by Senate Environment and Public Works Chair Thomas R. Carper, D-Del., originally would have provided $775 million upfront to oil and gas companies to cut their methane emissions. The current agreement doubles that to $1.5 billion, according to a Senate Democratic aide. Methane traps far more heat in the atmosphere than carbon dioxide.

4. Support for fossil fuel projects

Democratic leadership pledged to mandate new oil and gas leasing in the Gulf of Mexico and off the coast of Alaska, where industry groups are pushing for a major expansion in oil production. Sen. Joe Manchin of West Virginia, whose support was critical to Democrats in passing the bill, views drilling in those areas as important for the country's domestic energy independence.

5. Agriculture, steel, ports and more

The bill contains numerous smaller measures aimed at specific parts of the economy with high emissions: $20 billion for agriculture subsidies to help farmers reduce emissions, $6 billion to reduce emissions in chemical, steel and cement plants, and $3 billion to reduce air pollution at ports.

6. Hundreds of billions from a 15% corporate minimum tax

The biggest tax hike in the plan would apply to all U.S. corporations that earn more than $1 billion per year in profits. Under current law, U.S. corporations ostensibly pay a 21 percent tax rate. But dozens of Fortune 500 companies pay no federal income tax at all, by claiming deductions for things like research and development.

The plan would attempt to close off that option by subjecting large corporations to a tax on their financial statements. Corporations would still be able to claim tax credits, though, since renewable energy groups raised concerns the minimum tax could undercut the effectiveness of the climate tax credits.

7. $124 billion from major enforcement increases at the IRS

The IRS would scale up dramatically in an attempt to close the "tax gap" — the difference between what people and corporations owe and what they actually pay. Democrats say that their plan to invest $80 billion in the IRS would more than pay for itself, in part because the tax agency's budget was cut by 20 percent between 2010 and 2020. Former IRS commissioner Charles Rossotti and current Treasury official Natasha Sarin previously estimated the IRS could raise $1.4 trillion in additional tax revenue with more funding.

But Republicans say it represents a political vulnerability for the administration if more Americans face IRS audits or other scrutiny.

8. A new tax on companies repurchasing their own shares

As part of their last-minute negotiations to win the support of Sen. Kyrsten Sinema of Arizona, Democrats agreed to limit the extent of the corporate minimum tax and instead inserted a new tax on corporations that purchase shares of their own stocks.

Democrats have for years complained that these buybacks enrich wealthy shareholders because a firm drives up the value of its stock by buying it. Liberal tax experts have said that rather than spending money to increase their stocks' values, large corporations should spend it on improving worker pay or investing in new research and development. The 1 percent tax on stock buybacks would raise roughly $73 billion, according to a Senate Democratic aide. Conservatives oppose the bill as likely to discourage investment. The provision also could hurt retirement pension plans, said John Kartch, a spokesman for Americans for Tax Reform, a conservative group.

9. Lowering prescription drug prices

The deal allows Medicare to negotiate drug prices for the first time and would prevent future administrations from refusing to do so. It's a major win for Democrats, who have pledged to lower the cost of medicines, particularly for seniors. The government would start by negotiating the price of 10 drugs and scale up to 20 by 2029.

But it isn't clear how many Americans with Medicare coverage would see lower out-of-pocket costs — or how much money they could save. That depends on which drugs are negotiated and how much prices drop, according to the Kaiser Family Foundation.

The bill also includes other policies aimed at curbing the sky-high cost of drugs. For instance, it caps seniors' drug costs under Medicare to $2,000 per year, forces drug companies to pay a rebate if they increase prices faster than the rate of inflation in Medicare and provides free vaccines for seniors. The drug-pricing components are a key money saver — congressional scorekeepers estimated these policies would reduce the deficit by nearly $288 billion over a decade.

The legislation would also impose a $35 monthly cap on the cost of insulin — which people with Type 1 diabetes need to stay alive, and which many people with Type 2 diabetes use to manage their blood sugar levels — for patients enrolled in Medicare. Democrats had sought to extend the same cap to people with private insurance, but Republicans nixed such a policy on the Senate floor, arguing it didn't comply with the rules to avoid a filibuster.

10. Extending health insurance subsidies

Last year, Democrats' pandemic aid law boosted financial help for low-income Americans with plans on the Affordable Care Act's insurance exchanges and extended the subsidies to middle-income earners for the first time. But the enhanced tax credits are set to expire at the end of this year, raising the specter of roughly 13 million Americans learning that their health premiums would soon increase just weeks before the elections. The deal would extend the tax credits for three more years, through 2025.

11. Reducing the federal deficit

The original version of the legislation would have brought down the federal deficit by about $300 billion over 10 years, according to Marc Goldwein, senior vice president of the Committee for a Responsible Federal Budget. That would be more than any other legislation has done since 2011. The savings would shrink somewhat if Congress later extends the Affordable Care Act subsidies, which only last for a few years in the current version of the bill. Last minute changes to the bill have altered some of the bill's components and the amount of money they raise. Democrats say it still is far more than needed to offset its costs, but party leaders had yet to furnish a final fiscal analysis.