Democrats release slimmed-down reconciliation bill

In a surprise announcement late on July 27, Sen. Joe Manchin (D-W.Va.) revealed he and Senate Majority Leader Chuck Schumer (D-N.Y.) have reached an agreement on a slimmed-down version of a reconciliation bill, titled the Inflation Reduction Act of 2022 (the Act).

Over the last year, Manchin has been Senate Democrats’ primary holdout from enacting President Joe Biden’s ambitious agenda. There have been three distinct reconciliation negotiations during which Manchin has brought Senate Democrats closer to a more centrist position (with each successive iteration decreasing in scope and total cost), only to ultimately pull his support citing concerns over inflation. Before Schumer and Manchin’s most recent announcement, it appeared the latter would only support a reconciliation bill limited to lowering healthcare costs.

Inflation Reduction Act of 2022

The Act is estimated to raise $739 billion and spend $433 billion over the next 10 years, leaving an estimated $306 billion applied toward deficit reduction, a priority for Manchin. The bill’s tax title includes:

• 15% corporate minimum tax
  For tax years beginning after Dec. 31, 2022, the Act imposes a 15% tentative minimum tax on the adjusted financial statement (AFS) income of certain corporations. Affected corporations are those with an average AFS income in excess of $1 billion over the three preceding tax years.
• Carried interest modifications
  For tax years beginning after Dec. 31, 2022, the Act would change carried interest taxation. Partnership interests held in connection with the performance of services generally will not receive long-term capital gain treatment until a partner’s holding period exceeds five years, an increase from the current three-year requirement. Further, in a significant change from current law, a carried interest holder’s share of partnership section 1231 gains and qualified dividends would also be subject to recharacterization as short-term capital gains. Exceptions are provided for certain real estate trades or businesses and taxpayers with adjusted gross income of less than $400,000.
• Energy security and climate change provisions
  The Act’s climate change provisions are designed to lower energy costs, increase cleaner production and reduce carbon emissions by roughly 40% by the year 2030. These goals would be accomplished with numerous tax credits and targeted qualified loan programs, including qualified plug-in electric vehicles and funding for numerous clean energy programs.