By Terrance Turner
Aug. 16, 2022 (updated Sept. 13)
President Joe Biden today signed into law the Inflation Reduction Act. The landmark legislation, which addresses health care, taxes and climate, marked a breakthrough after months of stalled legislative negotiations. During a signing ceremony at the White House State Dining Room, Biden called the bill “one of the most significant laws in our history”.
The bill is named the Inflation Reduction Act, although an analysis by the University of Pennsylvania found it would reduce inflation by only 0.1% by the middle of the next decade. “The impact on inflation is statistically indistinguishable from zero,” said the university’s Penn Wharton Budget Model. But there is still much that the law does do.
This bill is the biggest step forward on climate ever — ever,” Biden said, amid a standing ovation from a crowd that consisted mainly of aides and allies (per the New York Times). Indeed, it represents the largest investment in funding for climate change in U.S. history. The law includes $60 billion to boost clean energy manufacturing, aiming to speed up production of solar panels, wind turbines, and battery minerals. It also contributes $10 billion in tax credits to help build clean manufacturing facilities that make solar panels and electric vehicles. There’s another $20 billion in loans for facilities that build clean-energy vehicles.
According to an official summary, the law pledges $60 billion for environmental justice, including block grants of $3 billion for community-led projects in disadvantaged communities and for community capacity building centers that address the disproportionate impacts of pollution and climate change. Also provided: $1 billion on clean heavy-duty vehicles like school buses and garbage trucks.
There’s an additional $20 billion to help with “climate-smart” agriculture, helping farmers and ranchers switch to sustainable practices like crop rotation and cover crops. (Crop rotation is placing different crops sequentially on the same plot of land in order to improve soil heath and return nutrients to the soil. This reduces fertilizer needs and reduces pesticide costs and field operations by naturally breaking the cycles of weeds, insects and diseases, according to the Department of Agriculture. Cover crops are plants meant to cover soil, rather than be harvested. They help manage soil erosion and reduce water drainage, which would pose environmental risk to waterways.)
Other spending includes:
- $30 billion in targeted loan and grant programs for states and facilities to speed transition to clean electricity
- $9 billion for procurement of American-made clean tech (incl. $3 billion for the US Postal Service to buy zero-emission vehicles)
- $27 billion to support deployment of emission reduction (esp. in “disadvantaged communities”)
- $500 million for heat pumps
Perhaps most notable to consumers are the $80 billion in rebates — which include $14,000 “in direct consumer rebates for families to buy heat pumps or other energy-efficient home devices,” according to the White House. (A heat pump is a device that takes heat from the air outside and compresses it in order to increase its temperature, then releases the heat into your home. Rather than burning fuel to create heat, it simply transfers heat from one place to another. This can help save money on utilities, according to howstuffworks.com.)
There’s a 30% tax credit for those who install solar panels on their roofs, saving families $9,000 over the life of the system or at least $300 per year, according to the White House. Other green-energy incentives include a $7,500 credit for those who buy new electric vehicles (starting next year) and a $4000 credit for people who buy used electric vehicles, according to the Washington Post. This could be crucial in terms of nudging Americans away from gas-guzzling vehicles, according to Joe Britton, executive director of the Zero Emission Transportation Association.
“That will be one of the really kind of unseen catalysts,” he told the Post. “Because once you get behind the wheel of an EV, you’re 95 percent likely to never go back.”
“The direct benefits won’t be immediate, but there is a lot here, starting with savings if you’re purchasing an electric vehicle,” said William Hoagland, senior vice president at the Bipartisan Policy Center.
On health care, the law allows Medicare to negotiate drug prices. But that authority is limited: Medicare can negotiate on only 10 prescription drugs in 2026, then another 15 drugs in 2027 and in 2028. That number will rise to 20 in 2029 and beyond, according to CNN. According to the White House, 5.7 million beneficiaries could see their drug costs go down because of this Medicare provision.
The Act redesigns Medicare Part D plans so that the beneficiaries on Part D won’t pay more than $2000 a year for prescriptions bought at the pharmacy, starting in 2025. Also, those beneficiaries with diabetes will have the price of their insulin capped at just $35 a month. (Democrats had hoped to have $35 insulin for those on private insurance as well, but Republicans and the Senate Parliamentarian nixed the idea.)
The Act will also extend federal premium subsidies for Obamacare through 2025. The Affordable Care Act made health care more affordable by creating a marketplace in which people could “shop” for health plans, and by offering federal subsidies to help low- and mid-income families afford it. Households making up to 400% of the federal poverty line could qualify and get federal help, according to Vox.
Those subsidies were set to expire at the end of the year, but the Act extends them until 2025.
On taxes, the bill gives nearly $80 billion in funding for the IRS over 10 years. That could speed up the processing of tax returns. “Folks will get their calls returned a lot quicker,” says William Hoagland, senior vice president at the Bipartisan Policy Center (a Washington, D.C.-based think tank). “And for individuals still waiting for their 2021 and 2022 tax returns to be processed, that’s likely to happen a lot faster, too.”
The Act also includes a framework for a program that would allow Americans to file taxes directly with the IRS, free of charge. That could save them $30 billion a year in tax-filing fees, according to Emily DeVito. (She’s a senior program manager for Roosevelt Institute, a think tank and nonprofit partner to the Franklin D. Roosevelt Presidential Library and Museum. It focuses on topics like race, labor, and gender, seeking to advance progressive policies.)
“A direct free file option could transform the experience millions of people have filing their taxes—and therefore improve their experience interfacing with their government,” DiVito wrote in a recent blog post, noting that this would be most beneficial to low-income families (who spend relatively more time and money filing taxes). Their tax status determines access to things like the Earned Income Tax Credit.
The Act also imposes a 15% Corporate Minimum Tax to ensure that the largest American corporations cannot avoid paying their fair share in taxes. The current corporate tax rate is 21%, but many of the 200 largest U.S. companies have been able to avoid that tax via loopholes. According to DeVito: “In 2020, 50 corporations paid $0 in federal corporate income tax—despite recording substantial profits.” The Inflation Reduction Act fixes that by establishing a 15 percent minimum corporate income tax on book income for corporations with over $1 billion in annual profits. The result is that the Act will raise over $700 billion in revenue in 10 years.
Today, Biden celebrated the law’s passage in a speech on the White House lawn.
“Exactly 4 weeks ago today, I signed the Inflation Reduction Act into law – the single most important piece of legislation passed in Congress to combat inflation, and one of the most significant laws in our nation’s history,” he said. “I’ve said it before and I’ll keep saying it: with this law, the American people won and special interests lost.”
“Folks, we’re going to lower prescription drug costs, lower health insurance costs, lower energy costs for millions of families. We’re going to take the most aggressive action ever, ever, to confront the climate crisis and increase our energy security – ever, in the whole world! And that’s not hyperbole. That’s a fact,” Biden insisted. “We’re going to build a future, the future, here in the United States of America, with American workers, American companies, American-made products.
And after years, some of the biggest corporations in the United States, paying zero in federal income tax, they will now have to begin to literally pay their fair share. Today offers proof that the soul of America is vibrant, that the future of America is bright, and the promise of America is real.”
“Some of my colleagues have been around a lot. How long have we been fighting Big Pharma? How long have you been taking on these interests? From the time I got to the Senate, 720 years ago,” he said, drawing laughs from the audience.
Meanwhile, there’s more work to be done. The stock market had its worst day since June 2020; The Dow lost more than 1,250 points and the S&P 500 sank 4.3%, thanks partly to a troubling new report about inflation.
The Bureau of Labor Statistics’ report today revealed that inflation rose 8.3% in August, slightly higher than expected. The consumer price index, which tracks a broad swath of goods and services, increased 0.1% for the month and 8.3% over the past year, according to CNBC.
Economists surveyed by Dow Jones had been expecting a decline of 0.1% for overall inflation, with a rise of 0.3% for core inflation. Instead, core inflation rose 0.6% month-over-month, and headline inflation increased 0.1% month-over-month, despite falling gas prices.