By Ariel Peterson
WASHINGTON, D.C.—This month, President Joe Biden signed H.R. 5376, the historic Inflation Reduction Act, marking it the largest, most comprehensive commitment the United States has ever made to fighting climate change.
Introduced to the House of Representatives by Representative John Yarmuth of Kentucky on Sept. 27, 2021, H.R. 5376 passed the House on Nov.19, 2021 and the Senate on Aug. 7, 2022. President Biden signed it into law on Aug. 16, 2022.
Though H.R. 5376 is called the Inflation Reduction Act, many of its major provisions are actually aimed at addressing climate change, as well as exorbitant healthcare costs.
For example, the law reforms tax credits for renewable sources of energy, both extending pre-existing tax credits that expired in 2022 and creating new ones. The White House expects these tax credits will contribute to “American clean energy supply chains, by incentivizing domestic production in clean energy technologies like solar, wind, carbon capture, and clean hydrogen.”
Tax credits for nonbusinesses have also been extended and even increased in some cases to help families make their homes and daily lives more energy efficient.
The Biden administration estimates that a new 30% tax credit will make renewable energy both more desirable and more accessible to middle-class and lower-income consumers. 7.5 million more families will be able to install solar panels on their roofs, and “$7,500 in tax credits for new electric vehicles and $4,000 for used electric vehicles” will encourage families to purchase electric instead of gasoline-fueled cars.
A second benefit of these tax credits is that they will create a $60 billion investment in better clean energy jobs. Bonus tax credits are included for businesses that increase the energy efficiency of homes or produce renewable energies and technologies if they pay prevailing wages and hire registered apprentices, which will allow workers to be paid higher union wages.
According to Senate Democrats, the Inflation Reduction Act’s tax credits and rebates will save consumers $500 on energy bills, reducing them to $1,000 per year.
Aside from tax credits, the Inflation Reduction Act directly provides funding to a number of government agencies so they can invest in reducing their usage of fossil fuels and mitigating the effects of climate change in their respective jurisdictions. Such funding will allow for the Department of Agriculture to work on restoring forests and building voluntary conservation programs, the Department of Housing and Urban Development to address the impact of climate change on affordable housing, the Department of Transportation to award grants for projects that reduce the greenhouse gas emissions of aircrafts, and the Department of Energy for rebates to encourage homeowners to increase their energy efficiency, among many other things.
Taken together, tax credits and new funding represent, Senate Democrats estimate, a $369 billion investment in energy security and the prevention and mitigation of climate change, which will contribute to approximately a staggering 40% reduction in carbon emissions by 2030.
Another issue the Inflation Reduction Act tackles is the high costs of healthcare.
First, the Centers for Medicare and Medicaid Services will now be required to negotiate the costs of prescription drugs. The White House expects five to seven million Medicare beneficiaries to see lower prices for their prescription drugs as a result.
Medicare beneficiaries will also see caps on how much they pay for drugs out-of-pocket. In 2024, they will not have to pay more than $4,000 out-of-pocket annually, and this maximum is halved to $2,000 in 2025.
Expanded Medicare benefits will also include free vaccines in 2023 and the cost of insulin lowered to $35 a month, which will impact the 3.3 million Medicare beneficiaries who live with diabetes.
Finally, the Inflation Reduction Act invests approximately $64 billion into extending health insurance premium subsidies for those who benefit from the Affordable Care Act.
The new law’s healthcare provisions both raise revenue for the government, in the form of $265 billion from prescription drug price reform, and save Americans money, with 13 million people saving an estimated $800 annually on health insurance premiums. These provisions also make health insurance available to 3 million more Americans than before it.
With so much of the government’s revenue to be invested in climate change mitigation and lowering healthcare costs, the question of where such revenue will come from arises.
The Inflation Reduction Act actually addresses this question through its reforms to the tax code.
Before the new law, some of the nation’s largest and most profitable corporations paid exactly $0 in federal income taxes. This contributed to the White House’s estimation that the top one percent of earners is able to evade nearly $160 billion in taxes every year.
However, the Inflation Reduction Act will put an end to these evasions by imposing a 15 percent corporate minimum tax on the largest corporations, as well as a one percent fee on corporate stock buybacks.
The Congressional Joint Committee on Taxation calculates that the 15 percent corporate minimum tax will raise approximately $222 billion and that the stock buyback fee will raise about $74 billion.
The White House is careful to point out that none of these taxes apply to middle- and lower-income families, stating that “no family making less than $400,000 will see their taxes go up a penny” and that the Inflation Reduction Act’s tax reforms are “an important component of building an economy that rewards work rather than wealth and doesn’t let the rich and powerful get away with playing by a separate set of rules.”
In terms of whether H.R. 5376 lives up to its name, its tax code reforms lead 126 leading economists, according to the White House, to expect a reduction in the federal deficit, which will in turn fight inflation.
Though the Inflation Reduction Act is a massive achievement, it has not been greeted with universal acclaim.
Crucially, not a single Republican in either the House of Representatives or the Senate voted to pass it, and the resulting tie in the Senate had to be broken by Vice President Kamala Harris.
On the liberal side, climate activist group the Sunrise Movement called the Inflation Reduction Act “a forced compromise between corporate oil lobbyists and young people who are fighting for a livable future” and stated bluntly that “the science of the climate crisis does not grade on a curve— and it’s clear that the IRA is not enough.”
Yet few deny that the Inflation Reduction Act is historic, and though it may not be a panacea against climate change and wealth inequality, it is certainly a significant step in those directions.