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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, marking a significant legislative achievement for his governance.
The Act represents a compromise between the initial, more expansive “Build Back Better” plan and the realities of a narrowly divided Congress. it focuses on three core pillars: reducing healthcare costs, especially prescription drug prices; investing in clean energy and climate change mitigation; and increasing tax revenue from large corporations to offset these investments. The Congressional Budget Office (CBO) estimates the Act will reduce the deficit by $305 billion over ten years.
for example, the Act allows Medicare to negotiate the prices of certain prescription drugs, a change expected to save the federal government $288 billion over the next decade. CMS Fact Sheet: Inflation Reduction Act Lowering Prescription Drug Costs. This negotiation process began in 2023, with the first negotiated prices taking effect in 2026.
The Inflation Reduction Act directly addresses healthcare affordability and access. It extends enhanced Affordable Care Act (ACA) subsidies through 2025, preventing premium increases for approximately 13 million Americans.
Prior to the Act, these subsidies were set to expire at the end of 2022, potentially leading to significant premium increases for individuals and families purchasing health insurance through the ACA marketplaces. The extension ensures continued coverage for those relying on these subsidies. The Kaiser Family Foundation provides detailed analysis of the ACA subsidies and their impact. KFF: Inflation Reduction Act and the ACA.
As of December 2023, approximately 19.4 million people were enrolled in ACA marketplace plans, a record high, partially attributed to the extended subsidies. CMS Press Release: Record-Breaking Enrollment
Climate Change and Energy Security Investments
A substantial portion of the Inflation Reduction Act is dedicated to combating climate change and promoting energy security. The Act allocates approximately $369 billion to clean energy tax credits, grants, and loan programs.
These investments aim to accelerate the transition to a clean energy economy by incentivizing the progress and deployment of renewable energy sources, such as solar and wind power, as well as technologies like carbon capture and storage. The Department of Energy (DOE) is central to implementing many of these provisions. DOE: Inflation Reduction Act. The Act also includes tax credits for consumers purchasing electric vehicles and making energy-efficient home improvements.
As an example, the Act provides a tax credit of up to $7,500 for the purchase of a new electric vehicle, subject to certain requirements regarding battery sourcing and manufacturing. IRS: Clean vehicle Credits. In 2023, over 730,000 electric vehicles were sold in the US, a 55% increase from 2022, partially driven by these incentives.
Corporate Tax Provisions and Revenue generation
The Inflation Reduction Act introduces several changes to the U.S. tax code, primarily targeting large corporations, to generate revenue to offset the costs of the Act’s other provisions. The most significant change is a 15% minimum tax on corporations with over $1 billion in annual profits.
This minimum tax aims to ensure that profitable corporations pay a fair share of taxes, addressing concerns that some companies were exploiting loopholes to avoid paying taxes. The Joint Committee on Taxation (JCT) estimates this minimum tax will generate approximately $220 billion in revenue over ten years. JCT: Analysis of the Inflation Reduction Act of 2022. The Act also increases funding for the Internal Revenue Service (IRS) to improve tax enforcement.
In November 2023, the Treasury Department reported that increased IRS enforcement efforts, partially funded by the Inflation Reduction Act, had already yielded an additional $3.8 billion in revenue. Treasury Press Release: IRS Enforcement results. This demonstrates the potential for increased tax revenue through improved enforcement.
- Joe Biden: President of the United States who signed the Act into law.
- Chuck Schumer: Senate Majority Leader who played a key role in negotiating
