Sens. Joe Manchin (D-WV) and Chuck Schumer (D-NY) shocked Washington, D.C. when they announced an agreement around a budget reconciliation package that includes clean energy and health care provisions and tax reform. The Inflation Reduction Act of 2022 (IRA) is a significantly scaled-back version of the Democrat's Build Back Better (BBB) plan, with a much lower price tag and fewer programs, with many of the programs progressive Democrats had pushed for last year eliminated from this iteration. According to negotiators, the bill will raise $739 billion in revenue and invest $369 billion in energy security and climate change and another $64 billion to extend the Affordable Care Act (ACA).

The health care provisions include allowing Medicare to negotiate prescription drug prices directly with pharmaceutical manufacturers, establishing a Part D out-of-pocket annual cap of $2,000 and subsidizing ACA health insurance premiums. For energy security and climate change, the bill includes billions in clean energy tax credits, some of which are new since the House passed BBB in 2021. It also includes substantial funding for agricultural practice incentives, forestry programs, residential and commercial building efficiency programs, a methane fee for the oil and gas industry, parity between offshore/onshore renewables and oil & gas leasing, and a number of other provisions designed to promote the country's energy independence and response to climate change.

To pay for these programs, the reconciliation bill includes a 15 percent corporate minimum tax ($313 billion), prescription drug pricing reforms ($288 billion), termination of the carried interest deduction ($14 billion) and an increase in funding for IRS tax enforcement (anticipated to raise an additional $124 billion). The Congressional Budget Office estimates that the legislation would decrease the deficit by $102 billion between 2022-2031.

Before the Senate can consider the IRA, the Senate Parliamentarian will consider if each provision complies with the budget reconciliation's Byrd Rule, which requires that reconciliation provisions have a clear nexus to revenue and spending. If the Parliamentarian confirms that each provision complies with the Byrd Rule, Majority Leader Schumer will move quickly to bring the bill to the floor for a drawn-out amendment process and then final passage. As of this writing, all eyes are on Sen. Kyrsten Sinema (D-AZ) to see if she will provide Senate Democrats with the 50th vote to pass the reconciliation package and send it back to the House. Sen. Sinema has previously stated her opposition to ending the carried interest deduction and has reportedly requested changes to the bill related to drought resiliency funding and other tax items.

If the Senate passes the IRA bill, which could happen as quickly as the end of this week, Speaker Nancy Pelosi (D-CA) is then expected to call the House back into session to pass the Senate's version of the IRA and send it to President Biden for his signature. One complicating factor in the House is the group of Democrats, mostly representing districts in the northeast and mid-Atlantic, who have demanded Democrats use reconciliation to repeal a cap on state and local tax (SALT) deductions that were part of the Tax Cuts and Jobs Act of 2017.

This document includes a comprehensive section-by section for the IRA prior to the "Byrd bath" and floor amendment process.

Comprehensive Section-By-Section of the Inflation Reduction Act

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