The Inflation Reduction Act of 2022 is a bill that has been put forth for consideration by the 117th United States Congress in July 2022. It aims to reduce inflation by lowering prescription drug costs, reducing the deficit, and investing in domestic energy production while promoting clean energy alternatives. Senators Chuck Schumer (D-NY) and Joe Manchin are the authors of the budget reconciliation measure (D-WV). The measure was the outcome of discussions surrounding the planned Build Back Better Act, which had undergone extensive revisions and reductions from its original draft due to resistance from Manchin. The Build Back Better Act was amended with it, and the legislative text was used in its place.
According to Schumer and Manchin, the plan would raise $739 billion and authorize spending of $370 billion on energy and climate change, $300 billion to reduce the deficit, three years of Affordable Care Act subsidies, price-lowering prescription drug reform, and tax reform. After discussions with Senator Kyrsten Sinema, several modifications to the tax provisions were made (D-AZ). The plan would be the biggest investment in climate change mitigation in American history if it were to become law. The New York Times highlighted a number of independent studies that showed that if passed, the bill would considerably advance US efforts to cut net greenhouse gas emissions in half by 2030. The Internal Revenue Service would also experience its largest expansion ever as a result.
Legislative History
The measure (as revised) was approved by the Senate on August 7, 2022, with a 51–50 vote from the Democratic and Republican parties, with Vice President Kamala Harris breaking the tie. The House will meet on August 12, 2022 to vote on the legislation's final approval.
Provisions
The bill would raise revenue from:
- imposing a 15 percent corporation minimum tax rate on businesses with yearly financial statement income exceeding $1 billion ($313 billion)
- Reforming the cost of prescription drugs, including negotiating drug pricing with Medicare, will save $288 billion.
- Enhanced tax collection - $124 billion
- $73 billion would be raised by levying a 1% excise tax on stock buybacks.
It would spend this revenue on:
- extending for a further three years the $64 billion in Affordable Care Act subsidies that were first increased by the American Rescue Plan Act of 2021
- $369 billion will be spent on addressing climate change and domestic energy security.
- $5 billion has been allocated for drought relief.
- Reduce the deficit by $306 billion.
- $80 billion will be spent on adding 87,000 new Internal Revenue Service (IRS) agents to increase tax enforcement.
The plan would extend the solar investment tax credit for 10 years as part of the investment in energy. After the initial draft text of the bill was published, it was made known that Democrats would also attempt to include clauses capping insulin pricing in the legislation.
Following discussions with Sinema, a number of clauses in the initial Schumer and Manchin agreement were altered: a clause that would have closed the carried interest loophole was removed; a 1 percent excise tax on stock buybacks was added; manufacturing exemptions for the corporate minimum tax were added; and funding for drought relief in Arizona was added.
Impact
The president of the Committee for a Responsible Federal Budget, the head of Moody's Analytics, as well as economists Jason Furman, Lawrence Summers, and Joseph Stiglitz, all expressed their opinion that the bill would lower inflation. Senate Democrats also highlighted the opinions of other analysts who also expressed this opinion. The Penn Wharton Budget Model's early estimate indicates that the measure would not statistically significantly affect inflation, with very minor rises until 2024 and declines after that.
According to analysis of the law by the nonpartisan Committee for a Responsible Federal Budget, the "debt reduction, combined with other parts of the package, is likely to lessen inflationary pressures and thereby reduce the likelihood of a probable recession." The Committee also calculates that over a 20-year period, the bill would cut the federal deficit by $1.9 trillion. The savings on interest payments as a result are included in this number.
In comparison to present policy, which would cut national greenhouse gas emissions by 24-35 percent, the Rhodium Group, an independent research source, predicted that under this plan, emissions would be reduced by 31–44 percent below 2005 levels by 2030.
Furthermore, according to Rhodium Group, the bill's nuclear provisions are likely to "keep much, if not all" of the country's reactors—an estimated 22–38 percent of the fleet—operational through the 2030s.
Excerpts from the nonpartisan Joint Committee on Taxation (JCT) suggested that the legislation might result in higher personal tax payments for Americans of all income levels ($16.7 billion more for taxpayers making less than $200,000 annually, $14.1 billion more for taxpayers making between $200,000 and $500,000, and $23.5 billion more for taxpayers making more than $500,000). This computation was based on the presumption that businesses would pass some of the minimal corporation tax on to employees indirectly. Steven M. Rosenthal, a senior fellow at the independent Tax Policy Center, questioned this presumption (TPC).
The JCT calculations did not account for the provisions in the bill that would extend premium tax credits for health plans for low- and middle-income taxpayers, offer households tax credits for making their properties more energy-efficient, and reduce the cost of prescription medications, according to economist William G. Gale, who is also co-director of the TPC.
According to modeling done by the impartial Energy Innovation group, a company that does research on energy policy, this legislation would generate 1.4 million to 1.5 million more employment and boost the GDP by 0.84 to 0.88 percent in 2030. The findings suggest that the bill, as opposed to not having it, will permit a reduction in greenhouse gas emissions of between 37 and 41 percent below 2005 levels in 2030. According to the authors of the bill, carbon emissions have decreased by 40% since 2005, which is in keeping with this estimate of the reduction in greenhouse gas emissions.
According to Resources for the Future's modeling, the measure will reduce retail electricity bills by 5.2 to 6.7 percent over the course of 10 years, saving the average US household between $170 and $220 annually. The law would lead to less fluctuation in electricity prices, according to the modeling.
According to the Tax Foundation, a fiscally responsible think tank, the plan will cost 30,000 jobs, reduce GDP by 0.1 percent, and generate $304 billion in more revenue for the purpose of reducing the deficit.
Reactions
Manchin made a statement expressing his support for the legislation. Joe Biden, the vice president, also endorsed the proposed legislation. Senator Kyrsten Sinema (D-AZ) announced on August 4 that she would support the legislation following an agreement with Democrats to modify a number of tax issues.
Republicans in Congress have unanimously opposed the plan, arguing that it will either do little to stop inflation or make it worse. Senate Minority Leader Mitch McConnell criticized the plan as "reckless spending," and Senate Budget Committee Ranking Republican Lindsey Graham referred to it as "insanity." Independent analyses indicated that the law would lower the budget deficit by the end of the decade and have no effect on federal spending. These organizations included Congress' Joint Committee on Taxation and the nonpartisan Committee for a Responsible Federal Budget.
ExxonMobil CEO Darren Woods praised the bill's provisions for oil and gas production and referred to it as "a start in the right direction."
The law was harshly attacked by numerous organizations representing the coal industry, including the West Virginia Coal Association, for "[obviating] any need to innovate coal assets" and doing "nothing for coal or coal generation."
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