Inflation Reduction Act: What to Know About the Democrats’ Latest Economic Package

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Build Back Better is dead. The Inflation Reduction Act is here. 

Senators Joe Manchin (D-W.Va.) and Majority Leader Chuck Schumer (D-N.Y.) caught almost everyone by surprise when they announced a scaled-down version of the Build Back Better Act Wednesday evening. Manchin had previously declared President Biden’s $2 trillion package dead and walked away from negotiations.

But here we are. The Reduction Act of 2022 is far more expansive than anyone thought it could be, covering everything from taxes, healthcare, renewable energy, and more. The bill proposes to put a 15% minimum corporate tax rate in place on companies with income of $1 billion or more. It would institute new tax credits on electric-vehicle purchases and increase funding for the IRS to conduct more audits. Perhaps most important, it would make $369 billion available in the form of investments and tax credits for clean energy projects, while also accelerating pipeline permitting. 

JPMorgan
’s
Mark Strouse expects Wall Street to react positively to the news, specifically clean tech stocks with high exposure to the U.S.

He’s not wrong. Solar stocks are surging. The

Invesco Solar exchange-traded fund
(ticker: TAN) rose 4.5%, while

First Solar

(FSLR) jumped 17%.

SunPower

(SPWR) climbed 14% and

Sunrun

(RUN) surged 21%.

The gains extended to electric-vehicle companies, too, with

Nikola

(NKLA) up 9%,

Hyzon Motors

(HYZN) up 7.6%, and

Plug Power

(PLUG) up 22%.

Clean energy wasn’t the only area of the market reacting to the news. Private-equity firms like Blackstone (BX) and

KKR

(KKR) initially slid on concerns that the so-called carried interest loophole would go away, though they have rallied into positive territory now that the market is open. Healthcare stocks, meanwhile, dipped on provisions that would allow Medicare to negotiate drug prices. 

The market is acting as if the bill might have a good chance of passing. There are risks, of course, with the reaction of Sen. Kyrsten Sinema (D-Ariz.) and House progressives potentially standing in the way of the act, notes 22V Research’s Kim Wallace. But there’s plenty of time for the House to complete work on its own version and for differences to get worked out. ”Senate Reconciliation language promoted by Senators Manchin and Schumer is very likely to pass that chamber in August,” Wallace writes.

Just don’t expect the Inflation Reduction Act to live up to its name. “What the legislation is called matters very little,” Wallace explains. “[It won’t] have much effect on near-term inflation or the longer run fiscal balance.”

It’s just the latest twist in the saga that could have far-reaching implications for the economy and the stock market.

Write to Ben Levisohn at [email protected]