Senate begins budget reconciliation action on revised Inflation Reduction Act

In brief

The Senate on August 6 voted 51 to 50 along party lines to begin floor action on a revised “Inflation Reduction Act'' budget reconciliation bill. The tie-breaking vote in the evenly divided Senate was provided by Vice President Kamala Harris.  

Debate on the proposed legislation began after the support of Senator Kyrsten Sinema (D-AZ) was secured by making changes to the July 27 version of the Inflation Reduction Act, which had reflected an agreement between Senate Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-WV). 

Key tax changes in the revised version include modifying the proposed 15% book minimum tax (BMT) on corporations with profits over $1 billion to disregard certain cost recovery expenditures (the BMT is proposed to be effective for tax years beginning after December 31, 2022), and dropping a proposed change to the tax treatment of “carried interest.” In addition, a provision was added to the bill to impose a 1% excise tax on a publicly traded US corporation for the value of any of its stock that is repurchased by the corporation (effective for repurchases of stock after December 31, 2022); a similar provision was part of the “Build Back Better” reconciliation bill passed by the House last November. 

The revised bill also reflects a change made in response to a review by the Senate parliamentarian on whether the bill’s provisions comply with Senate reconciliation rules. The parliamentarian ruled that a proposed requirement for pharmaceutical companies to pay a rebate if the prices of certain prescription drugs exceeded a specified rate of inflation was permitted under Senate rules to apply to Medicare plans but could not be applied to private sector health plans.  

Senate Democrats will continue to need the unanimous support of all 50 Democratic Senators to advance the reconciliation bill over the opposition of Senate Republicans. Under Senate budget reconciliation procedures, there can be up to 20 hours of floor debate on the proposed legislation, after which Senators may continue to offer amendments but without further debate (the so-called Senate "vote-a-rama"). 

Observation: If Senate Democrats pass a final version of the legislation, the House is expected to return on Friday, August 12 from its current August recess to vote on it. House Democratic leaders have indicated that they hope to pass the Senate bill without change so that it can be cleared for signing by President Biden.  

Note: If Senate Democrats are successful in passing a budget reconciliation bill, PwC will be releasing a detailed overview of the legislation and any further modifications that may be approved by the Senate. Additional Insights will follow to provide further analysis of key provisions in the legislation. 

Action item: Stakeholders should analyze the proposed legislation and communicate with policy makers on the potential effects of tax increase proposals on their employees, job creation, and investments in the United States.