On Aug. 16, President Joe Biden signed the Inflation Reduction Act of 2022 (IRA) into action. In short, the bill aims to reduce the U.S.’ carbon emissions by 40% by 2030, make Medicare and prescription drugs more accessible, strengthen domestic manufacturing and invest in a fairer tax code for the ordinary citizen.
One of the significant talking points around the bill is its ambitious goal to spur economic development across the U.S. through investments in clean and renewable energy projects.
For instance, one of the provisions under the bill grants businesses additional tax credits — deductions and exemptions from one’s tax bill — for building specified clean energy projects in communities whose economies have largely relied on the natural gas or fossil fuel industry for employment.
Tax credits are also granted to clean energy projects that “pay workers prevailing wages and use registered apprenticeship programs,” according to a statement released by the White House.
Companies that promise prevailing wages to their employees but do not see it through will be penalized, and the money from these fines will be returned back to the workers.
These provisions support the clean energy initiative by reducing environmental injustice and carbon emissions, as well as provide sustainable employment and economic growth within poorer, disadvantaged communities.
Casey Wichman, an assistant professor at the Ivan Allen College of Liberal Arts’ School of Economics, stated that the bill’s clean energy incentives “will help accelerate our inevitable transition off of fossil fuels and will help further development of large-scale energy storage to mitigate issues of intermittency associated with wind and solar [energy].”
In fact, over $60 billion will be invested into creating more domestic manufacturing jobs in the clean energy department. A large focus of the bill is to increase the domestic production of materials and equipment used in the clean energy projects — as opposed to outsourcing those jobs to foreign countries — in order to create even more American jobs and promote a more energy-efficient and environmentally sustainable nation.
To do this, the IRA will provide companies that use American-sourced materials and products in their clean energy projects with incentives such as additional tax credits.
These tax credits are not limited to large businesses and corporations investing in clean energy; the bill also makes sustainable energy upgrades to households and appliances more affordable through tax credits, rebates and other incentives.
According to a White House press release, these upgrades are not only made cheaper and more accessible but will also “save families money on their utility bill in the long run.”
For example, the same press release states that households will be able to save up to 30% via tax credits on more “efficient heating and cooling equipment that will save them hundreds of dollars on utility bills,” as well as home construction projects that ultimately reduce their carbon footprint.
The bill does not stop at the economic growth and environmental justice initiative. It boasts support for underprivileged communities and the working class through Medicare expansion and a tax code that seeks to hold large corporations accountable for their taxes.
The IRA boasts an instituted “minimum corporate tax of 15%” on large corporations in the nation with at least one billion dollars in income. To reinforce this, the IRS will be receiving an $80 billion investment that will revitalize the agency and allow it to more effectively go after corporations that may be getting away with not paying their full tax payments.
It is worth noting that the bill makes it clear that it is targeting big businesses that benefit from relaxed tax codes and thus pay unfair tax rates in comparison to the average taxpayer; any families or small businesses making less than $400,000 will not see any additional money added to their tax bill.
In regards to healthcare, the IRA aims to increase accessibility to medicine by allowing Medicare to negotiate the price of prescription drugs and further benefits and extensions.
While these policies cannot go into effect immediately, the plan is to steadily introduce price caps on out-of-pocket prescription drug costs, such as a $35 cap for a month’s supply of insulin.
According to a Forbes article, analyses and studies conducted by the nonpartisan Penn Wharton Budget Model and the Congressional Budget Office predict that the IRA will have a minimal effect on inflation itself — especially in the coming months.
While the legislation does encourage economic development and aims to reduce the federal deficit, the increased government spending outlined in the bill makes its effects on inflation in the future remain a mystery.
Despite this, the bill does take a necessary step in signing into law many significantly progressive economic and environmental policies, especially in response to the ever prominent climate and inflation crises present today.