The Inflation Reduction Act proposes to raise over $700 billion in new revenues over 10 years to be spent on energy, climate change initiatives, health care and deficit reduction. But not all of those revenues come via higher taxes. More than half comes from health care savings and from beefed up IRS tax enforcement.
Scott, Aug. 7: On top of that, I mean, they’re going to raise taxes by over $700 billion. And let’s remember, companies don’t end up paying the taxes. Shareholders pay the taxes. Lower income for the employees paid the taxes. Less investment pays the taxes.
Scott, Aug. 7: It’s going to help Republicans, raising taxes $700 billion, cutting Medicare $280 billion, raising gas taxes, having 87,000 more IRS agents.
But he’s wrong about the bill “raising taxes $700 billion” and “cutting Medicare.”
An initial analysis of the bill by the nonpartisan Joint Committee on Taxation identified more than $300 billion in higher taxes in the Inflation Reduction Act, most of it from a corporate minimum tax of 15% on companies that report average profits in excess of $1 billion over a three-year period.
Much of the remaining revenue-raisers come from health care savings — estimated by the Committee for a Responsible Federal Budget at about $322 billion over 10 years — and from investing $80 billion in IRS tax enforcement, which is expected to result in a net of $124 billion in new revenues over 10 years.
On the spending side, the Inflation Reduction Act would invest about $369 billion in energy and climate change incentives, including tax credits for the production of solar and wind energy equipment and the purchase of electric vehicles. (So, there are tax credits in addition to tax increases.) There’s also roughly $100 billion in health care expenditures in the bill, mainly for an extension of subsides for health insurance policies purchased via the Affordable Care Act exchanges.
“We’re still waiting on final numbers,” from the JCT’s score of the amended version that was approved by the Senate, Marc Goldwein, senior vice president and senior policy director at the Committee for a Responsible Federal Budget, told us via email. “But I think it will be something like $250b of gross spending cuts, over $300b-$350b of gross tax increases, and $200b of revenue from higher tax compliance. But the tax increases will mostly pay for tax cuts in the form of energy credits, so the net tax cut will be small.”
“You are correct that the $700 billion is not all taxes, some of that is the $280 billion being cut away from the Medicare program which is on track to go broke in 2028,” McKinley Lewis, communications director for Scott, told us via email. “We look forward to you highlighting that fact.”
Lewis referred us to this Aug. 8 tweet from Scott: “With Medicare on the brink of going broke in a few years, Senate Dems just voted to pull $280 BILLION away from the program & put future benefits for our seniors at even greater risk.” (An ad from a group called American Prosperity Alliance makes a similar claim that the bill “will strip $300 billion from Medicare, money seniors rely on for their medicine, their treatments, their cures.”)
But that’s misleading. The bill seeks to lower prescription drug costs by allowing Medicare to negotiate some prescription drug prices. The legislation also repeals a Trump administration rule that would have stopped negotiated rebates in Medicare Part D between pharmaceutical manufacturers and either pharmacy benefit managers or health plan sponsors, as the Kaiser Family Foundation explains. The rule had been delayed and had never taken effect.
The Congressional Budget Office estimated the Medicare provisions in an earlier version of the bill would reduce the deficit by about $288 billion over 10 years.
As the Committee for a Responsible Federal Budget explains, “While these policies do reduce the cost of Medicare, they do so by lowering prescription drug costs, not by cutting benefits. In fact, we estimate the policies as a whole would improve benefits by lowering premiums and out-of-pocket costs — including through a $2,000 annual cap on out-of-pocket costs.”
Also, Medicare isn’t “on the brink of going broke in a few years,” as Scott said in his tweet. As we have explained, the Hospital Insurance Trust Fund — which helps pay for inpatient hospital care under Medicare Part A — is expected to be depleted in several years, but “continuing total program income will be sufficient to pay 91 percent of total scheduled benefits,” the Medicare Board of Trustees said in its 2021 annual report. That’s because the trust fund is largely financed through a payroll tax, which is currently 1.45% for the employer and 1.45% for the employee for a total of 2.9% on earnings up to $200,000 (and an additional 0.9% tax on employees for earnings over $200,000).
If realized, the Medicare savings in the bill actually would extend the solvency of the program.
When he said the Democrats are “raising taxes $700 billion,” Scott was also including revenues in the bill from enhanced IRS enforcement of existing tax laws, Lewis said. Specifically, the bill would increase IRS funding by $80 billion over 10 years. The tighter enforcement is estimated to bring in $204 billion, netting $124 billion in additional revenue.
“If the IRS is collecting more money, it’s because they are collecting more taxes from American families and businesses,” Lewis said.
But it’s a stretch to call that raising people’s taxes. Rather, it is making sure people pay the taxes they already owe.
As CRFB noted, “every past president from Ronald Reagan to Donald Trump has supported reducing the tax gap with stronger IRS funding,” meaning the gap between taxes owed and taxes actually paid. Trump’s “last two budgets included between $60 billion and $90 billion of additional revenue from improved tax compliance,” CRFB said.
There were some last-minute bill changes prior to Senate passage of the Inflation Reduction Act that were not factored into JCT’s initial analysis. For example, the Senate bill no longer includes a proposal to end the “carried interest” tax benefit that allows managers of investment funds to pay a lower capital gains tax rate, rather than income tax rates. That provision would have raised $13 billion over 10 years, according to the JCT. In the final Senate bill, the Democrats instead added a 1% excise tax on stock buybacks.
“The bill changes over the weekend are roughly offsetting in terms of revenue, so the tax revenue raised is about the same,” William McBride, vice president of federal tax and economic policy at the Tax Foundation, told us via email. “So, based on CBO’s score at the end of last week, there is a little more than $300B in tax increases over the budget window through 2031.”
The Senate vote came down strictly on partisan lines, and Vice President Kamala Harris broke the 50-50 tie to advance the bill to the House. Speaker Nancy Pelosi has said she expects the House to approve the bill on Aug. 12.
Update, Aug. 18: Biden signed the Inflation Reduction Act into law on Aug. 16.
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