Senate Majority Leader Chuck Schumer and Sen. Joe Manchin struck a secret tax deal late Wednesday that “the markets can live with,” according to Greg Valliere, chief U.S. Policy Strategist for AGF Investments.
“No one in Washington — including us — saw this coming: Given up for dead, a package of new environmental spending and modest tax hikes has won the approval of mercurial” Manchin, Valliere said early Thursday in his Capitol Notes newsletter.
In releasing The Inflation Reduction Act of 2022, the new proposal for the FY 2022 Budget Reconciliation package, Schumer said “this Senate Democratic Majority will take action to finally take on Big Pharma and lower prescription drug prices, tackle the climate crisis with urgency and vigor, ensure the wealthiest corporations and individuals pay their fair share in taxes, and reduce the deficit.”
The Senate will vote on The Inflation Reduction Act of 2022 next week, he explained.
The bill includes measures to “make biggest corporations and ultra-wealthy pay their fair share,” according to a bill summary, and includes “no new taxes on families making $400,000 or less and no new taxes on small businesses — we are closing tax loopholes and enforcing the tax code.”
The new plan will invest roughly $300 billion in deficit reduction and $369 billion in energy security and climate change programs over the next 10 years.
Why is it the bill the markets can live with? “There’s no tax hike on most corporations or individuals in general; there’s no tax hike on unrealized gains, there’s no global tax, and there’s nothing new on capital gains or estate taxes,” Valliere explained in his latest briefing.
The bill does, however, “contains several bombshells: the global minimum corporate tax has been dropped, funding for electric vehicles is back, the carried interest loophole finally may be killed, and there could be a new U.S. corporate minimum tax,” the policy expert said.
The Manchin-Schumer tax changes, according to a summary of the bill, are:
- 15% corporate minimum tax applied to companies with profit of over $1 billion
- Potential carried interest limitations
- Enhanced IRS funding for enforcement
- Removal or softening of international tax provisions
- No adjustments for state and local taxes (or SALT)
As for prescription drug changes, the bill will “finally allow Medicare to negotiate for prescription drug prices and extend the expanded Affordable Care Act program for three years, through 2025,” the summary states.