The Inflation Reduction Act: A Brief Summary
ZACH FOTIADIS: Following President Biden’s signature of approval earlier last month, the Inflation Reduction Act of 2022 has officially become the law of the land. In a rather unexpected turn of events, congressional Democrats’ policy agenda has been rebooted following months of protracted underground negotiations between Senate Majority Leader Chuck Schumer and key swing vote Sen. Joe Manchin. A significantly reduced version of the Build Back Better plan passed by the House of Representatives last November, the IRA comes amidst Democrats efforts to legislatively entice voters ahead of the midterm elections in three months.
The $737 billion package is the most financially ambitious federal program since the Infrastructure Investment and Jobs Act of 2021, incorporating a wide range of public policy measures near and dear to the Biden Administration. The law is separated into two parts: the revenue-raising and revenue-spending provisions. Over a ten year period, the IRA is expected to acquire its funds via the lowering of prescription drug costs and federal tax reform. This involves maximizing revenue via reducing the hefty financial burden of personal medical expenditures as well as more equitable taxation. The subsequent returns are to be invested in deficit reduction, healthcare subsidies, drought resiliency, IRS modernization and combating Climate Change.
Among the bill’s most crucial sections involves granting Medicare the power to negotiate prescription drug prices. Although the policy’s scope was reduced to exclude private health insurance plans, the Congressional Budget Office nonetheless estimates the existing provision to add roughly $265 billion to the federal budget. Two of the law’s largest sources of revenue include enhanced enforcement of the federal tax code and corporate tax reform, both collectively raking in a whopping $425.7 billion. The latter involves the implementation of a 15% minimum tax on corporate entities reporting greater than $1 billion in annual earnings. This measure maintains the present top marginal corporate tax rate of 21%, but caps legal exemptions so no business in the highest bracket can deduct more than 6% of what they owe. A remaining $74 billion was acquired through a 1% excise tax on stock buybacks, substituting a previous provision eliminating the carried interest tax loophole for private equity firms. This amendment, along with a $4 billion investment in Midwestern drought relief, was critical to gain the support of Sen. Kyrsten Sinema of Arizona.
In addition to a $300 billion reduction in the national deficit, the IRA finances the most robust response to man-made Climate Change in U.S. history. From extensive tax credits/subsidies for clean infrastructure and energy-efficient consumer products to heightened pollution standards and investments in sustainable agriculture, this $369 billion move has been projected to reduce greenhouse gas emissions by approximately 50% of 2005 levels by 2030. $64 billion worth of Affordable Care Act premium grants are also among the bill’s spending contents, extending a previous measure administered by the American Rescue Plan of 2021.
Although the Inflation Reduction Act passed both chambers of Congress along strict party lines, critiques of the legislation span the ideological spectrum. While every single congressional Republican opposed the bill, largely objecting to its hefty price tag, many on the progressive left such as Sen. Bernie Sanders of Vermont have noted the law’s gutting of many key provisions in Build Back Better including the child tax credit extension, universal pre-K and paid family/medical leave. Despite these concerns, preliminary polling data suggest most of the IRA’s contents possess broad support amongst the American public, a positive sign for Democrats hoping to advertise the act to likely voters this November.
One of the law’s most controversial portions includes an $80 billion initiative to expand and modernize the tools of the Internal Revenue Service. While its defenders cite the need to strengthen IRS resources as a means of inhibiting mass corporate tax evasion, critics point to the increased tax burden middle and lower income brackets may be compelled to bear as a result.
A noticeably absent feature of this summary has been how the Inflation Reduction Act addresses inflation. This is largely because its inclusion into the law’s nomenclature is almost exclusively a marketing technique. Ever since the country’s inflation rate reached its highest point in four decades this past year, the American electorate has been clamoring for legislative relief. Biden himself has faced particular heat for his alleged role in exacerbating the crisis. It is only natural then that the White House has chosen to incorporate anti-inflation rhetoric into its signature initiative this year, even though credible estimates appear to indicate that it would only reduce inflation by 0.1% over the course of five years.
Only time will tell what the exact consequences of the IRA will be. Whether it will be the Democrats’ saving grace or simply a futile effort is up for the American people to decide. Having passed likely the most significant piece of legislation the party has to offer ahead of the midterms, the leadership has made its investment and hopes for a sizable return.
Zach Fotiadis is a senior staff writer for On the Record originally from Miami, Florida. He is currently a junior in the School of Foreign Service studying International Politics with a minor in history.