The Inflation Reduction Act of 2022 was signed into law by President Biden on August 16th 2022. The legislation includes large investments in making health care and prescription drugs more affordable, fighting climate change through various incentives and taxing high earning corporations. We’ll lay out a summary of the provisions and impact below:
Provisions
Revenue raising provisions:
Prescription drug price reform to lower prices, including Medicare negotiation of drug prices for certain drugs (starting at 10 by 2026). This ideally lowers Medicare costs for beneficiaries and makes more funds available in the US budget – $265 billion
Imposing a selective 15% corporate minimum tax rate for companies with higher than $1 billion of annual financial statement income – $222 billion
Increased and improved tax enforcement by IRS – $203.7 billion
Imposing a 1% excise tax on stock buybacks – $74 billion
Spending provisions:
Addressing domestic energy security and climate change – $369 billion (more on this below)
Deficit reduction – $300 billion
Continuing for three more years the expansion of Affordable Care Act subsidies originally expanded under the American Rescue Plan Act of 2021 – $64 billion
New funding for drought resiliency in western states – $4 billion
Increased funding for the IRS for modernization and increased tax enforcement – $80 billion
Impact
Although the full implications of the IRA are hard to forecast, we will focus on a few of the major points.
Economically, the additional spending could spur job growth in clean energy sectors and increase GDP to some degree. Importantly, there are no changes to individual income tax brackets.
Environmentally, the bill is impactful. It’s provisions could reduce national greenhouse gas emissions 32–42% below 2005 levels by 2030, compared to 24–35% under current policy. Energy security stands to gain from increased domestic energy generation and storage. Clean energy production is incentivized through numerous tax credits. Typical US household power costs are forecasted to decrease by 5-6% over the next ten years. The bill has an assortment of tax credits for businesses adopting or enhancing clean energy.
For our clients, some of the potential impacts are:
Reduced Medicare and or medicare drug costs in the future
Reduced healthcare premiums for those purchasing healthcare through Obamacare exchanges.
Amended tax credits for Electric Vehicles, although there are nuances.
Tax credits for home renewable energy systems are extended through 2034 and equal 30% of equipment/install cost.
Tax credits for home energy efficiency improvements that are generally better than prior legislation, between 10-30% of costs with limitations.
$4 billion in new drought resiliency funding for Western states should improve future water security
As always, the ramifications of new legislation can take time to unfold. However, this is undeniably a step in the right direction for clean energy and the environment.
Lastly, please consider spending 30 seconds to sign this petition on requiring better standards for Sustainable and Responsible Investments.
We hope you find this summary interesting and insightful. As always, feel free to pass these on to others!