2022 Inflation Reduction Act: A Strong Step Toward Rebuilding our Economy but Families Need More

We applaud the swift passage of this historic legislation and will continue to advocate for investments in the care economy

This week President Joe Biden signed the historic Inflation Reduction Act (IRA), a $700 billion bill funding reductions in prescription healthcare costs and climate issues, which Congress hopes will help the overall economy and each family’s economic well-being. The passage of the reconciliation mega-bill gives us hope that Senate and House representatives can and will move solutions through a grid-locked Congress. The IRA makes the most sweeping investment in greening our energy and economy. Over the next 10 years, the bill will invest $370 billion into clean energy. Congress expects this bill to create 9 million jobs over the next 10 years, assist low-income families to improve the energy consumption in their homes, and reduce our country’s emissions.

While Congress’s expedited action and the broad investments in health care and climate fighting solutions are a marked step forward, child care and paid leave advocates are raising alarm that federal dollars for the care economy were left out entirely. The 2021 Build Back Better (BBB) Act would have delivered long-sought after programs and investments in child care, pay equity for early learning providers (to match public school teachers), a Paid Family and Medical Leave (PFML) program as numerous countries and states already have, and made the very effective anti-poverty child tax credit permanent. Congress’s hope that the IRA will truly help individual families in need, who aren’t on Medicare, still remains to be seen.

The IRA’s $700 billion investment is a great start and a strong step toward rebuilding our economy, but women and families need more. Congress must expand the bill’s investments in health care and clean energy to also include more key issues—such as a Paid Family and Medical Leave program, investments in child care that also include workers’ wages, and reviving the child tax credit.

Health Care

The Inflation Reduction Act will help millions of Americans better afford health care and will help hold pharmaceutical companies accountable for their high drug prices. The Act includes the following provisions to improve health care affordability:

Allows Medicare to negotiate on drug prices

For the first time, Congress has authorized Medicare to negotiate prices on pharmaceuticals. Since its inception, Medicare has been prohibited from negotiating pharmaceutical prices, which allows drug manufacturers to charge whatever the market will bear for their products. Starting in 2026, Medicare will be able to negotiate prices on 10 drugs and additional drugs will be added to the list in future years. Another provision requires pharmaceutical giants to pay “rebates” to the federal government if they raise Medicare drug prices beyond the rate of inflation.

Caps out-of-pocket drug costs for Medicare recipients

Starting in 2025, Medicare enrollees will have to spend no more than $2,000 per year for their medicines. Currently, patients must spend $7,050 before the catastrophic cost limit kicks in. Additionally, insulin expenses will be capped at $35 a month, which will help the 3.3 million Medicare beneficiaries who use some form of insulin. There has previously been no limit on how much patients can be charged for the insulin they need to live. Overall, the pharmaceutical aspects of the bill have been estimated by the Congressional Budget Office to save the federal government $288 billion over 10 years.

Extends premium subsidies

Very importantly, the Act includes $64 billion to extend federal health care premium subsidies for three years. These subsidies were created by the American Rescue Plan Act in early 2021 and resulted in a record five million people enrolling in marketplace health coverage. The bill expanded eligibility of Advanced Premium Tax Credits (APTCs) to 20% more people by setting a cap to ensure that enrollees would not spend more than 8.5% of their income on health insurance. The Act also improved affordability by making subsidies more generous for very low-income people, who pay nothing for health care premiums if their income falls below 150% of the federal poverty line. The Act will help prevent a mass increase in uninsurance: if Congress had failed to extend these subsidies, 50,000 Washingtonians would have lost their health insurance and even more would have faced major affordability cliffs. The Act helps maintain the significant wins from prior legislation, which saves 13 million people an average of $800 per year.

While we didn’t win the broad advancements on health care affordability and industry regulation we fought for in the initial Build Back Better act over the past year, this bill offers an important step forward for patients across the nation.

Tax Reform

The IRA includes key reforms to the federal tax code that some are calling the biggest win for tax fairness in decades. The following reforms will bring greater equity to our economy:

15% minimum corporate tax

For public and private corporations with average annual income exceeding $1 billion or for those foreign-parented corporations with $100 million in U.S.-derived income, their federal income tax bill will be simply 15% of their “book income.” Book income is the income that corporations report to their investors and is determined using accepted accounting principles; it differs from taxable income, which companies report to determine their tax liability and incorporates deductions and credits available through tax policy. The Institute on Taxation and Economic Policy reported in 2021 that 55 of the largest American corporations paid zero dollars in federal corporate income taxes despite having hefty profits. For instance, tech behemoth Amazon paid zero federal income taxes for several years, then in 2019 finally paid taxes at an effective rate of only 1.2% on $13 billion in U.S. profits.

Businesses that object to this reasonable tax reform and argue that it will hinder their ability to grow need to explain why corporations got a massive tax cut under the 2017 Trump Tax Cuts and Jobs Act (TCJA) and how this led to record stock buy backs, not an investment in workers, equipment or other assets that would grow businesses. By reducing the number of shares on the market, stock buybacks artificially boost the value of the remaining shares that investors already hold. Stock buybacks, once viewed as outright market manipulation and outlawed until 1982, are increasingly used by large corporations. After the TCJA, stock repurchases hit a record $190 billion in the first quarter of 2018 for the S&P 500.

1% Excise Tax on market value of publicly-traded stock buybacks

Excitingly, the reconciliation package includes a 1% excise tax on the market value of publicly-traded stock buybacks. This provision will raise $74 billion a year. The original brokered deal included a reform to the carried-interest loophole, but Arizona’s Senator Sinema, a major recipient of private equity money, successfully lobbied to strip this reform from the bill. The carried-interest loophole preferentially treats the income of private equity, hedge fund and venture capital managers by taxing it the capital gains rate rather than at the labor income rate.

Increase in IRS funding over the next decade by $80 billion

The IRS has been chronically underfunded for decades and audit rates have steadily decreased while every day tax payers struggle with profit-extracting tax preparation companies like TurboTax.

Care Economy

Congress scrapped Build Back Better proposals to better fund child care and set up a federal Paid Family and Medical Leave program. These proposals and funding would have made a stronger impact on millions of families’ financial bottom lines. The child care portions of Build Back Better would have saved millions of families thousands of dollars in child care and early learning costs, and it would have also raised the wages for many child care workers. The Build Back Better plan included a voluntary, free universal pre-K program for every child. It also would have limited middle-class families paying no more than 7% of their income on child care. These were strong and important proposals for women, children, and the country’s economy. The pandemic laid bare that our country’s shortcomings—in providing child care access and affordability for families and reasonable wages for child care workers—hurt the overall U.S. economy and was a major barrier to including women in our workforce. Likewise, Congress did not include a Paid Family and Medical Leave program, which was a proposal in Build Back Better, into the IRA.

However, the good news is that hope is still alive for possible future bills to address these crucial concerns. Senators and Congressmembers have held conversations with community partners and are crafting new aspirational legislation for items that did not make it into the IRA. We will continue to advocate investments and programs which support the economic well-being of all our people such as child care funding, a federal Paid Family and Medical Leave program and other investments critical to thriving, healthy communities.

  • Leave a Reply

Your email address will not be published.

More To Read

A Fair Deal at Work

August 16, 2022

2022 Inflation Reduction Act: A Strong Step Toward Rebuilding our Economy but Families Need More

We applaud the swift passage of this historic legislation and will continue to advocate for investments in the care economy

A Fair Deal at Work

June 30, 2022

Winning Equitable Paid Family and Medical Leave for All Washington Families

Family isn't one-size-fits-all - work-family laws shouldn't be either

A Fair Deal at Work

March 11, 2022

2022 Legislative Session Review

Washington legislators made good decisions but the measures passed will not reverse the 40-year trend of growing income inequality.