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U.S. House passes historic climate, tax legislation with no GOP support

Riley Beggin
The Detroit News

Washington — Sweeping legislation to boost climate spending, raise taxes on corporations, lower the cost of prescription drugs and speed the auto industry's pivot to electrification passed the U.S. House Friday on a 220-207 party-line vote.

It's a far cry from the package President Joe Biden first proposed more than a year and a half ago, a more than $2 trillion slate of proposals that would revamp the nation's tax, social services, climate and energy and infrastructure systems. 

But experts say the bill, dubbed the Inflation Reduction Act, is still the most significant piece of climate legislation passed in U.S. history. The package is expected to put $369 billion into supercharging the clean energy economy and create around $737 billion in revenue, reducing overall deficits by around $300 billion.

It includes significant aid for the U.S. auto industry, though some proposals have been criticized as useless in the short-term. Despite the name, preliminary estimates say it is unlikely to have a significant impact on inflation.

Speaker of the House Nancy Pelosi (D-CA) talks to reporters during her weekly news conference ahead of the vote on the Inflation Reduction Act of 2022 at the U.S. Capitol on Aug. 12 in Washington, D.C.

The bill's passage also leaves Democrats in Washington with multiple legislative victories to tout as they go into a competitive midterm election cycle — a surprising turnaround from just weeks ago when it appeared negotiations had come to a grinding halt. 

None of Michigan's delegation broke ranks with their respective parties Friday, with the state's seven Republican members voting against the bill and its seven Democratic members voting for it. 

"The Inflation Reduction Act is a transformational piece of legislation that is going to address some of the urgent challenges facing our nation," Rep. Debbie Dingell, D-Ann Arbor, said Friday.

Michigan Democrats praised the legislation as a much-needed shot in the arm to their climate and health goals, while Republicans raised concerns about continued spending and increased tax enforcement by the Internal Revenue Service. 

"Does anyone actually believe that this bill is going to reduce inflation?" retiring Rep. Fred Upton, R-St. Joseph, asked on the House floor Friday. "I didn’t think so."

Biden is expected to quickly sign the bill into law.

Climate boost

The bulk of the spending will go to clean energy programs aimed at reducing emissions and slowing climate change. Independent research firm Rhodium Group estimates it will reduce emissions 31%-44% over 2005 levels by 2030, compared with 24%-35% under the status quo. 

Consumers will soon be eligible for billions in tax credits and rebate programs to make their homes more energy efficient, such as installing rooftop solar, heat pumps and electric water heaters. 

Companies will be able to use tens of billions in tax credits to build clean energy components such as wind turbines, critical mineral processing plants and electric vehicle batteries. Automakers will qualify for billions more for building new plants and retooling old ones to build EVs and their components. 

Rep. Bill Huizenga, R-Holland, said the additional dollars will go into an economic system "that has already been choking on the weight of" Congress' other spending this session. He called the climate provisions "Green New Deal light," a reference to a 2019 climate framework introduced by Rep. Alexandria Ocasio-Cortez, D-New York.

"That's not the right direction," he said. "What I'm frustrated with is that you're not seeing market forces at play here, you're having government subsidies or regulations that are requiring what I view as very harmful changes."

Many of the programs incentivize aid for disadvantaged communities or areas that have disproportionately been impacted by the effects of climate change. 

The bill also includes major changes to tax credits for electric vehicles. It creates a new $4,000 credit for people to buy used EVs, and for the first time offers both a new and used credit as an up-front discount, rather than requiring buyers to wait until they file their taxes to get money back.

A 200,000 vehicle per manufacturer cap that has prevented General Motors Co., Tesla Inc. and Toyota Motors Corp. from continuing to benefit from the existing $7,500 credit also will be lifted. 

However, the legislation also includes new strings aimed at boxing China out of America's burgeoning electric auto industry, including requirements that vehicles have an increasing amount of battery minerals sourced from the U.S. or allied countries and that vehicles are assembled in the U.S. — provisions required by conservative Sen. Joe Manchin, D-West Virginia, in order to include the credit.

A leading group representing the auto industry has lobbied to change that and warned that no existing EVs would qualify for the credit once it goes fully into effect. Michigan Sen. Debbie Stabenow, D-Lansing, has expressed dismay that the credits will be difficult for automakers to take advantage of. 

Rep. Debbie Dingell and fellow members of the House Progressive Caucus hold a news conference ahead of the vote on the Inflation Reduction Act of 2022 outside the U.S. Capitol on August 12, 2022, in Washington, D.C.

Dingell, a former General Motors executive, agreed it's going to be three to five years before car companies will be able to meet the requirements. 

But "Joe Manchin doesn't want the U.S. to become more dependent on China and neither do I," she said, later adding: "It's going to incentivize the companies to move more quickly to develop that (mineral and battery production) source here."

Taxes and health care

The legislation gives the federal government the ability to negotiate some drug prices and caps out-of-pocket drug prices for Medicare recipients to $2,000 per year. It also bars companies from raising Medicare drug prices faster than inflation and extends health care subsidies for low- and middle-income people under the Affordable Care Act. 

Rep. Elissa Slotkin, D-Lansing, said when she arrived in Washington Friday morning, her team had received more than 1,000 calls in support of the drug-pricing provisions. She's disappointed some drug provisions were lost, including a $35 insulin cap for private insurers. 

"But I will always take some progress over no progress," she said. "And that's what this bill is by a long shot."

Democrats' bill includes a 1% tax on stock buybacks — companies purchasing shares of their own stock, a method often used to boost share prices — and implements a minimum corporate tax rate of 15% on companies with at least $1 billion in income. 

The tax proposals are what remain from an earlier version that would have closed a loophole that allows private equity and hedge fund managers to pay lower tax rates, taken out of the bill at the behest of Democratic Sen. Kyrsten Sinema of Arizona. 

It's also significantly less than Biden's original proposal to increase the corporate tax rate to 28%, raise the highest income taxes to nearly 40%, and implement a 43% capital gains tax on taxpayers with income over $1 million. 

Rep. Richard Neal, D-Massachusetts, told Bloomberg Friday morning that if Democrats retain the majority in Congress after the midterm elections this fall, the House will look to raise corporate and individual income taxes akin to a Ways and Means Committee proposal from 2021. 

This statement — on top of an appropriation in the bill of around $80 billion over the next 10 years to increase IRS enforcement activities — incensed Republicans who voted against the legislation. 

"The ink is not yet dry on today's massive tax hike, and Democrats are already calling for more," wrote Michigan Rep. Tim Walberg, R-Tipton, on Twitter. "Stop the madness."

Rep. Lisa McClain, R-Bruce Township, said, "this bill does anything but reduce inflation" and called it "nothing but a socialist messaging bill."

Democrats argued it balances the scales by making the wealthiest sectors of the economy pay more to support people: Reps. Andy Levin, D-Bloomfield Township, and Dan Kildee, D-Flint Township, both said it represents the biggest corporations paying "their fair share" in taxes.

rbeggin@detroitnews.com

Twitter: @rbeggin