Congress.gov reported on Aug. 22, 2022, that President Joe Biden had signed the Inflation Reduction Act into law. The IRA is multi-pronged and only minimally addresses inflation, despite its name. It focuses on healthcare initiatives, corporate income taxes, the national deficit and, notably, the environment, energy transition and the climate crisis.
Passage of the act came after the Senate approved an amended version on Aug. 7, tweaking some provisions related to prescription drug costs and taxes. This all came at a time when inflation had hit a 40-year high.
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Climate Action and the IRA: Tax Credits
The White House cites several provisions of the Inflation Reduction Act that are intended to address issues related to climate change. The act offers Americans enhanced tax credits for the purchase of electric vehicles and clean energy products.
The electric vehicle credits include $7,500 for new vehicles and $4,000 for used cars. The IRA also provides Americans with other incentives for greener living: a credit of 30 percent of the cost of installing solar panels and $14,000 in direct consumer rebates for the purchase of heat pumps and other energy-efficient appliances. These clean energy technology purchases should also provide savings by reducing home energy costs.
Numerous other credits are aimed at encouraging corporations and big businesses to take steps to achieve net zero carbon emissions by enacting advanced energy and hydrogen production measures. This includes the expansion and extension of the Carbon Capture Tax Credit.
Aid to Schools and Underserved Communities
The IRA invests $60 billion into environmental efforts, most notably in the form of grants and subsidies to underserved and low-income communities to help with enacting long-term pollution changes. It pledges to focus many of these efforts on school zones and ports, areas that are prone to high numbers of trucks, busses and heavy-duty vehicles, to potentially achieve emissions reductions.
According to the U.S. Environmental Protection Agency, these measures should collectively reduce greenhouse gas emissions 10 times more than any other climate legislation has ever achieved. All told, the energy and climate tax credits and funding will cost the government $386 billion.
The White House cites several provisions of the Inflation Reduction Act that are intended to address issues related to climate change.
Adjustments to Medicare
The IRA doesn't focus entirely on climate goals and energy projects, overlooking America's dilemma with rising healthcare costs. The White House also indicates that some of the act's provisions are aimed at reducing prescription costs for five to seven million Medicare recipients through measures that will allow Medicare to negotiate directly with drug providers the cost of 100 Part B and Part D medications. Medicare Part D pharmacy costs will be limited to no more than $2,000 per year, and out-of-pocket insulin costs are capped at $35 a month.
Unfortunately, the Committee for a Responsible Federal Budget indicates that these measures were even more generous prior to the Senate's revision of certain IRA terms on Aug. 7. The initial version of the act anticipated $322 billion in overall savings, but the Committee doesn't believe these provisions will achieve quite that much.
The IRA additionally extends the premium tax credit provided for under the terms of the Affordable Care Act by three years, through 2025. The credit was set to expire in 2022.
The Effect on Income Taxes
Where's the money coming from to fund all these measures? The IRA takes steps to make corporations responsible for footing a fair portion of the legislation's terms.
The Biden administration has indicated that 55 of America's wealthiest corporations paid not a dime in income tax in the tax year 2020. The act aims to collect taxes already owed by these and other corporations and by the nation's wealthiest individual taxpayers. It earmarks $79 billion in additional funding to better enable the Internal Revenue Service to take steps to do so.
The National Law Review reports that the act also introduces a 1 percent excise tax and a 15 percent alternative minimum tax on certain corporations. But the Committee for a Responsible Federal Budget has indicated that the enhanced and additional climate- and energy-related tax credits will closely offset these tax increases, and the White House maintains its pledge that these changes should not affect American families with incomes of less than $400,000 a year.
- Congress.gov: H.R.5376 – Inflation Reduction Act of 2022
- The White House: By the Numbers: The Inflation Reduction Act
- United States Environmental Protection Agency: The Inflation Reduction Act: A Big Deal for People and the Planet
- Committee for a Responsible Federal Budget: What’s in the Inflation Reduction Act?
- The National Law Review: What’s in the Inflation Reduction Act?