The Inflation Reduction Act of 2022
Table of Contents
The Inflation Reduction Act of 2022 is a landmark United States federal law that aims to lower healthcare costs, address climate change, and raise taxes on large corporations. President Joe Biden signed the bill into law on August 16, 2022.
The Act represents a important investment in clean energy and climate resilience, offering tax credits and rebates for individuals and businesses to adopt sustainable practices. It also allows Medicare to negotiate prescription drug prices, a long-sought goal of Democrats. Funding for these provisions comes largely from a 15% minimum tax on corporations with over $1 billion in profits.
On August 16, 2022, President Biden stated, ”This law is about a future where healthcare is affordable for all, where clean energy creates good-paying jobs, and where corporations pay their fair share.” [White House Statement]
Key Provisions: Healthcare Cost Reduction
The Inflation Reduction Act directly lowers healthcare costs for millions of Americans by allowing Medicare to negotiate the prices of certain prescription drugs.
Prior to the Act, Medicare was prohibited from negotiating drug prices with pharmaceutical companies. The law initially allows Medicare to negotiate the prices of 10 high-cost drugs starting in 2026, with the number increasing over time. This negotiation process is expected to save Medicare and beneficiaries billions of dollars. The Congressional Budget Office (CBO) estimated that allowing Medicare to negotiate drug prices will reduce federal deficit by $101.8 billion between 2027 and 2031. [CBO Report on the Inflation Reduction Act]
For example, the negotiated prices for drugs like Eliquis and Jardiance are expected to be available to Medicare beneficiaries starting in 2027. [CMS proclamation of First 10 Drugs Selected for Negotiation]
Climate Change and Energy Security
The Inflation Reduction Act allocates approximately $369 billion towards climate and energy provisions, making it the largest climate investment in U.S. history.
These investments include tax credits for renewable energy production, electric vehicle purchases, and energy efficiency improvements. The Act also provides funding for climate resilience projects, such as protecting communities from extreme weather events. The goal is to reduce U.S.greenhouse gas emissions by roughly 40% below 2005 levels by 2030.The Environmental Protection Agency (EPA) projects that the IRA will reduce greenhouse gas emissions by 37% below 2005 levels by 2030. [EPA on the Inflation Reduction Act]
As an example, the Act offers a tax credit of up to $7,500 for the purchase of a new electric vehicle, incentivizing consumers to switch to cleaner transportation options. [IRS Information on Clean Vehicle Credits]
Corporate Tax provisions
The Inflation Reduction Act introduces a 15% minimum tax on corporations with annual profits exceeding $1 billion.
This provision aims to ensure that large, profitable corporations pay a fairer share of taxes. Prior to the Act, many large corporations were able to utilize tax loopholes and deductions to pay little or no federal income tax. The Joint Committee on Taxation estimates that the corporate minimum tax will raise approximately $315 billion over ten years. [Joint committee on Taxation Publications]
For instance, in 2021, several major corporations, including Amazon and FedEx, reported billions of dollars in profits but paid no federal income tax. [New York Times Report on Corporate Taxes]
- Joe Biden: President of the United States who signed the Inflation Reduction Act into law.
- Chuck Schumer: Senate Majority Leader who played a key role in passing the legislation.
- Nancy Pelosi: Speaker of the House who oversaw the bill’s passage in the House of Representatives.
- Medicare: The federal health insurance program for people 65 or older and certain younger people with disabilities.
- Internal Revenue Service (IRS): The agency responsible for administering and enforcing federal tax laws.
- Environmental Protection Agency (EPA): The agency responsible for protecting human health and the surroundings.
