We answer your questions about the “Inflation Reduction Act”

Make Me Smart August 10, 2022 transcript

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Meghan McCarty Carino: Hey folks, I’m Meghan McCarty Carino, I’m in for Kai Ryssdal. Welcome back to Make Me Smart where we make today make sense.

Kimberly Adams: And I’m Kimberly Adams, thank you for joining us for Whaddya Wanna Know Wednesday, the day in the week where we answer listener questions with the help of our wonderful team over here at Make Me Smart.

Meghan McCarty Carino: If you’ve got a question about the economy or business or tech, email us, makemesmart@marketplace.org. Or leave us a voicemail. Our number is 508-U-B-SMART, which I’ve kind of been wondering, why isn’t it U-R-SMART? I’m just. Just saying, just saying.

Kimberly Adams: No, because that’s what the number is. It’s the number. Like because the R is a different number on the phone.

Meghan McCarty Carino: Well, I know. Why couldn’t we make it? whatever. We should’ve done it with proper grammar, I’m just saying.

Kimberly Adams: Well no. So no, this is actually a fun story. When the number first came out, it wasn’t like anything related to it. It’s just like one of the listeners recognize the U-B-SMART, so that was added to it later on.

Meghan McCarty Carino: Are you kidding me? It was just a fortunate – it was just Kismet?

Kimberly Adams: Sure. I don’t know what Kismet means, but I’m gonna go with it. And then I think…

Meghan McCarty Carino: Happy coincidence.

Kimberly Adams: Yes, I think the smart part may have been planned, but the U-B- I don’t think so.

Meghan McCarty Carino: Okay, gotcha. Gotcha. Well, anyway, now that we’ve settled that, we do have a couple questions today about the Inflation Reduction Act, which we’ve talked a little bit about this week. But you know, it’s dense. It has a funny kind of name that is not super descriptive. But we’re talking about a climate bill, which included tax stuff, included also, you know, drug price stuff, so let’s hear it.

Zack: Hey Make Me Smart team, this is Zack from Berkeley, California. I’m thinking about the climate bill that just passed that also has a number of prescription drug elements to it. I was wondering if they bring down the prices for prescription drugs for Medicare, which is the goal, will that bring down prescription drug prices for everyone? Thanks.

Kimberly Adams: Oh, wouldn’t that be lovely, but no is the answer. It’d be nice. But no. Look, the biggest effect of this is going to be on people with prescription drug coverage through Medicare, which is a big chunk of people. It’s 18.4% of the US population in 2020, according to data from the US Census Bureau. So specifically, the way that the bill brings down drug costs for Medicare is it allows the federal – the Secretary of Health and Human Services to negotiate directly with pharmaceutical companies a certain number of drugs each year for Medicare. Plus, it puts a $2,000 per year cap in out-of-pocket costs for prescription drugs for those on Medicare. So it lowers those costs two ways, the drugs are going to be cheaper, and the total out of pocket costs for people on Medicare is going to be cheaper. It also requires drugmakers to offer rebates to Medicare, if they raise the price of medicines faster than the inflation, although this year would probably be great for them, because that means they can jack it up like 8.5%, 9%. But we talked to James Robinson, a professor of health economics from the School of Public Health at UC Berkeley about this. And he said that, really there’s not going to be much impact for non-Medicare patients, because it’s really hard for Congress to pass legislation that will affect non-Medicare patients, given the current dynamic of things. So here’s how that works. Every so often, you’ll hear us talk about things getting through the Senate based on like reconciliation or something like that, which allows them to pass things with that party line vote 50-50 with the Vice President breaking the tie, but those votes have to have something to do with like the budget, right? And so if you say hey, this is something that affects Medicare, alright, fine. That has to do with the budget because the federal government pays for Medicare. If you’re saying hey, we want to shape how the private industry pays for drug prices, meh that’s outside of the realm. And so you need 60 votes to get that passed. And so they did try to slip it in, but it didn’t work, because it didn’t apply to the budget and the Senate parliamentarian was like, no go. So, anyway, this current bill only affects the public program passed with the 50 Democratic votes plus the one tiebreaker from Vice President Harris, all the Republicans oppose. We spoke to another experts, Juliette Cubanski, deputy director of the program on Medicare policy at the Kaiser Family Foundation, so much Kaiser this week. I’m sorry, Kaiser Family Foundation is different from Kaiser Health News. Yes, but she confirms that it mostly affects people on Medicare, one provision might have spillover effects on the other types of insurance, which is the requirement for those rebates that drug makers have to pay, if they raise prices over the cost of inflation, you know, that could lead pharmaceutical companies to introduce new drugs at higher prices than they might otherwise, because they it makes it harder for them to raise those prices later. But look, already new drugs are very expensive, especially today compared to like, a decade ago. And so, you know, it’s hard to tell if that concern is something that the industry is putting out there to try to avoid this from happening in the first place, or if it’s real, but, you know, at least for the people on Medicare, older Americans, Americans with disabilities, some people who have extreme health concerns, you know, they’re going to they’re going to feel some relief.

Meghan McCarty Carino: Yeah, I’ve seen some concerns voiced by business groups too, that, you know, for employer-based health plans. This is total speculation that, you know, perhaps pharmaceutical companies could try to recoup some of those costs by raising prices for those private plans that are sponsored by employers. That is just something that I’ve seen concerns about, I think, all of this is very complicated and has yet to, you know, we don’t know all the potential ramifications, but yeah. I mean, it’s the start of something in terms of drug prices. I know this has been a very, very long time coming, this kind of, you know, even just doing it through Medicare.

Kimberly Adams: Yeah. All right. Let’s go to our next question, which is also tied to the Inflation Reduction Act.

Jim: This is Jim from Las Vegas. And I would like to know how the 15% minimum corporate tax on over a million in profit would apply, and what it would mean for several companies like Amazon, Tesla, or the big oil. Do they have other deductions to get around it? If not, how much additional income would the government get from their tax? That’s it. Thank you.

Meghan McCarty Carino: Right, yeah. I think that, I think this is something that there’s broad sort of agreement about when you hear about these extremely lucrative companies, and that they paid very little or no corporate taxes. It’s always a little bit jarring. And as he mentioned, you know, Amazon, Tesla, Meta, you know, all these big companies, there have been, in recent years, these stories about how they’ve paid, in some cases, no taxes during years where they have appeared to have very big profits. So this 15% minimum corporate tax, it’s basically, you know, it’s part of how Democrats plan to pay for all the hundreds of billions of dollars in energy and climate technology investments, in this bill that we talked about earlier this week. And this is, it’s sort of, you know, it’s not like a first-line solution, it’s not raising the corporate tax, it’s not closing a lot of these deduction loopholes, but it’s an attempt to close some loopholes in the tax code that have let these very big profitable companies like Amazon and Tesla essentially paid very little. Currently, the corporate tax rate is 21%. This is an effort to get them a little closer to paying their fair share. And so how it would work is, you know, according to an analysis in the Washington Post, companies with at least $1 billion in income would be required to calculate their annual tax liability in two ways. So the first is kind of the usual way that they calculate it for tax purposes, which is 21% of profits less deductions and credits, which is where those, you know, those deductions come in for those companies that really shrink their tax liability. There are all kinds of deductions, you know, depreciation of all of their capital investment and those kinds of things. This would require another calculation applying the 15% minimum rate to the earnings they report to shareholders on their financial statements, which is a little different. This is known as book income. So whichever amount is greater, that would be what they owe. Now, this is how it works in theory. In practice, tax experts aren’t totally convinced that this is going to necessarily make it so that all those big companies end up paying what I think people would consider to be their fair share. They still have a lot of options for getting around, those deductions are a pretty big thing. And then on top of that, it just…

Kimberly Adams: Accountants make their money.

Meghan McCarty Carino: Exactly, you know, and I mean, it’s all in the tax code, they find their ways. But ultimately, this just really wouldn’t apply to very many companies. You know, the Joint Committee on Taxation estimated earlier in the bill’s lifecycle that it would affect, maybe 150 companies would be subject to this tax. That was before there were some last minute changes to exempt companies controlled by private equity firms. That was kind of a little thing that Kyrsten Sinema got in the bill before she agreed to support it. So it was originally estimated to generate maybe $300 billion over 10 years. Now, it’s closer to $200 billion. And this is separate from the 15% global minimum tax that folks are talking about, kind of on the global stage, you might have heard about European Union. Treasury Secretary Janet Yellen is working on this with OECD companies, a lot of them have signed on, which would target companies, you know, moving their headquarters or sort of financial headquarters to these low tax havens to get out of paying taxes in the countries that they actually do business. That is still in process.

Kimberly Adams: Taxes, taxes, taxes, that – that was a lot.

Meghan McCarty Carino: Enough talk of taxes, maybe for today.

Kimberly Adams: Well, and I think we’re gonna be unpacking this for months. This is such a huge piece of legislation that touches so many parts of the economy.

Meghan McCarty Carino: I know, and every piece of it is so complicated. And we could do, yeah, we could do an entire show on each little piece of it. So all right, next question of the day. Let’s hit it.

Ben: Hi, my name is Ben. I’m from Austin, Texas. I was calling to see if you can help make me smart about a phrase that keeps popping up in discussion around inflation. The phrase is, people who are living paycheck to paycheck, or just this idea of paycheck to paycheck, in general. Is “paycheck to paycheck” supposed to refer to just those on fixed incomes, the elderly, the disabled, etc? Or is it really apply to all of us? And how should we think about it when we hear it?

Kimberly Adams: I think this is an example of one of those imprecise bits of language we use in journalism, and we just need to do better. Because there isn’t a single clear definition of what paycheck to paycheck means. I mean, look, all of us that get a paycheck, which not everybody does, some people are paid in different ways. You know, we spend that paycheck on different things, and then we get the next one, spend that on different things. So for generally speaking, though, people are using it to refer to folks who don’t have a lot of savings, and need that next paycheck to cover their basic expenses, like rent, food, and bills. At least that’s how Investopedia and several other groups describe it. But at the same time, other people use it as a shorthand for the working poor, which isn’t really fair, because you can have people making up in the six figures who, you know, either live exactly at their means or beyond their means, and need each paycheck to keep it up. And there are several reports out there that talk about how many Americans are living paycheck to paycheck, with various definitions, depending on who’s doing the polling. And it ranges from like 50% to 63%. And again, it just depends on how it’s defined. And so you really do have to pay attention to…

Meghan McCarty Carino: Yeah, that seems high, yeah.

Kimberly Adams: Well, not really. I mean, if you think about it, that’s half of Americans who need their next paycheck to pay the bills that they have coming up. That could be a perfectly responsible way of living, you know, as long as you have a paycheck. It just doesn’t give you much wiggle room. And, and, you know, with rising housing costs, so many people are spending, you know, 30%, 40%, 50% of their income on housing, how could you not live paycheck to paycheck? So, anyway. It means a lot of things to different people, and there’s no exact definition but it doesn’t… Some people use it as shorthand for the working poor, but that’s not really an accurate shorthand, because there are plenty of people making a lot of money, but still living paycheck to paycheck.

Meghan McCarty Carino: At Marketplace when we used to do those polls every now and again, those surveys that we used to do, I think we had a question that we always include – that’s right, the economic anxiety index that we used to do. We always used to have a question in there, it was one of our standard questions, I think. You know, are you prepared for a $500 emergency? And I think during the pandemic, we added are you prepared for a $250 emergency? And yeah, the percentage of people who said no, even to the $250 emergency was strikingly high. And particularly, you know, during those early months of the pandemic, when unemployment was skyrocketing and people couldn’t get their unemployment checks and all that stuff. But yeah, I mean, it is always kind of striking to realize that that is the situation for such a majority of people.

Kimberly Adams: Yeah. Well, what a lovely happy up note to end on, but that is it for us today. Thank you for listening. Make Me Smart is gonna be back tomorrow with some news and this time, we’ll actually have some make me smile.

Meghan McCarty Carino: All right. In the meantime, please keep sending your questions. Our email again, is makemesmart@marketplace.org. Or you can leave us a voicemail at 508-U-B-SMART, which I now realize is proper grammar if you’re speaking in the imperative sense. You be smart.

Kimberly Adams: Oh! Sure, let’s go with that.

Meghan McCarty Carino: It’s a command.

Kimberly Adams: Make Me Smart is – yes, it’s a command. You! Be smart! The best. Anyway, Make Me Smart is produced by Marissa Cabrera. Olivia Zhao is our intern, Ellen Rolfes writes our newsletter.

Meghan McCarty Carino: Today’s show was engineered by Charlton Thorp. Ben Tolliday and Daniel Ramirez composed our theme music. And our Senior Producer is Bridget Bodnar.

Kimberly Adams: That was nice timing on that ending there, Megan.

Meghan McCarty Carino: Hey.