Inflation Reduction Act (“IRA”)- Current Summary

August 11, 2022
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The Senate on Sunday passed the IRA by a 51-50 vote. It will be voted on later this week in the House and could be signed into law in the next week or so.  Frankly, it may not have a current impact on inflation.  Rather, its key objectives are slowing global warming, pushing down prescription drug costs, expanding health care subsidies, increasing taxes on wealthy corporations and giving the I.R.S. a funding boost to collect more taxes.  Let’s take a look at the legislation that passed the Senate- of course, the final law may vary from this:

Slowing Global Warming.  This legislation plans on investing nearly $400 billion in tax credits and programs for energy and climate reform in the following areas:

  • Lower consumer energy costs. The bill would provide incentives for consumers to buy energy efficient appliances, clean vehicles, rooftop-solar and provide grants to make affordable housing more energy efficient.
  • Support clean energy reliability. It would provide $60 billion to clean energy manufacturing in the U.S. Provide $10 billion for tax credits for solar panels, wind turbines, batteries and minerals.  And, provide $2 billion in grants to auto manufactures to manufacture clean vehicles as well as $20 billion in loans to car companies to make the transition.
  • Decarbonize the Economy by helping to reduce emissions. Tax credits would be given for clean sources of electricity and grants and loans to states and electric utilities to transition. Grants and tax credits would be provided for reducing emissions.  The goal is to reduce greenhouse gas emissions by the end of this decade by 40% compared to 2005.
  • $60 billion for environmental justice programs to help disadvantaged communities. This would include grants to reduce air pollution at ports and provide money for clean heavy-duty vehicles, like school buses and garbage trucks.
  • It will provide more than $30 billion to farmers, forestland owners and rural communities. Includes grants to build the infrastructure for sustainable aviation fuel and conserve and restore coastal habitats.

Medicare can now negotiate the price of prescription drugs. This should lower the cost of drugs by billions. They will start with 10 drugs in 2026 and then include more in the future.  It would cap out the amount seniors pay for drugs at $2,000 per year and provide them with free vaccines.

More health care subsidies. In 2021, many Americans received lower premiums under the Affordable Care Act program.  That program is being extended for three more years and allowing more people to qualify for this benefit.

To pay for this, the IRA bill would impose a tax hike on corporations.  A new 15% minimum corporate tax would be assessed on all wealthy corporations based on their “book/financial” income that they report to shareholders.  There is also a new 1% excise tax on stock buybacks starting in 2023. In addition, the bill provides $80 billion to the I.R.S. to help it be in a better position to go after tax evaders. In theory, the legislation would reduce the Budget Deficit by $300 billion.

Conclusion:  Even though this legislation is called the “Inflation Reduction Act,” there is little that can be seen in the near term to reduce inflation.  Of course, most of the bill is focused on clean energy and theoretically, in the long run, clean energy could be cheaper.  Yes, this program would be another stimulus package- a combination of government spending and taxation measures.  Based on the Fed’s rate increases, the economy is slowing down- we may be in recession now or on the verge of it.  That is the time that governments look for help through stimulus packages. Let’s see if this bill becomes law. And, then, how it all works out.

 

 

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