Senate Passes Landmark Tax, Drugs and Climate Bill

The legislation was passed through reconciliation, a Senate procedure that exempts certain tax and spending measures from a filibuster and requires only a simple majority to pass.

Trimmed from its original $6 trillion price tag to one of around $437 billion, the bill will nonetheless be a cornerstone achievement of Biden's first term and one Democrats are eager to campaign on before the November midterms where they are fighting to retain control of Congress.

Key elements of the legislation:

• Medicare would be allowed to negotiate drug prices, starting with 10 high-priced drugs by the middle of this decade and expanding from there. It would cap out-of-pocket drug costs for seniors enrolled in Part D at $2,000 per year. The Senate parliamentarian spared drugmakers any penalties for increasing prices in the commercial market. The savings to Medicare will be used to pay for three years of subsidized Obamacare premiums.
• The bill allows roughly $374 billion in climate and energy spending such as expanded tax credits for renewable energy projects. It ends per-manufacturer limits for the $7,500 tax credit for electric vehicle purchases, a boost for electric vehicle makers like Tesla Inc. But the vehicles will have to be built in North America and carmakers will have to quickly end a reliance on China for the battery supply chain. Some automakers like Ford Motor Co. and General Motors Co. lobbied to make changes to the credit.
• Government revenue will be raised from the establishment of a 15% corporate minimum tax on large firms, a 1% excise tax on the value of stock buybacks and an $80 billion boost to the Internal Revenue Service for enforcement.
• The minimum corporate tax would affect fewer than 150 companies in a given year. Tech companies such as Alphabet Inc.'s Google and Meta Inc.'s Facebook could face the levy. Last-minute changes narrowed its scope in an effort to protect private equity, as well as businesses that invest heavily in equipment and facilities, such as manufacturers.
• The tax on stock buybacks has largely been shrugged off by Wall Street analysts, though some have noted it could spur corporations to issue dividends over repurchasing shares to juice equity prices. Apple Inc., JP Morgan Chase & Co. and Microsoft Corp. have relied on share repurchases as a strategy to boost stock prices in recent years.
• The taxes increases are noteworthy for who isn't affected. Democrats and Biden ran on reversing former President Donald Trump's 2017 tax cuts, including the corporate rate, which remain untouched. High-earners, including millionaires and billionaires, won't face higher taxes, either.

Sinema demanded that the bill retain the carried interest tax break for private equity. That request irked many of her fellow Democrats who say there is little justification to provide tax benefits to highly paid investment managers.

The bill also doesn't address two key priorities for many Democrats: implementing a 15% global minimum tax deal that Treasury Secretary Janet Yellen negotiated with nearly 140 countries last year and increasing the $10,000 cap on the state and local tax deduction, or SALT. With Democrats likely to lose a majority in at least one chamber of Congress next year, it's unclear if either proposal can pass.

Still, Democrats indicated they were satisfied with the outcome. Schumer said the party has been talking about lowering drug prices and curbing climate change for years to little avail.

"This is America's first real push to fight back in the climate crisis. This is the first time that we have just opened the door for Medicare to be able to negotiate with prescription drug companies," Massachusetts Democrat Elizabeth Warren said after voting. "And this is the first time that we have said billion-dollar-plus corporations are going to have to pay a minimum tax. All three of those are historic."

–With assistance from Zach C. Cohen, Naomi Jagoda and Diego Areas Munhoz.

(Photo: Senate Majority Leader Chuck Schumer, left,  and Senator Joe Manchin, right; Bloomberg)

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