Authors of the bill say it aims to tackle inflation by lowering costs for families and that it promises to reduce the federal deficit by about $300 billion over the next 10 years. Republicans say it will drive up prices and increase taxes. Here are the major provisions and how they could affect your pocketbook.
Rebates and Tax Credits for Households Investing in Clean Energy
One of the top priorities in the bill is to fight climate change. To do so, it calls for investing nearly $370 billion in measures intended to lower energy costs, increase cleaner production, and reduce carbon emissions by about 40% by 2030—the largest climate-change investment in the nation’s history. Under the bill, low-income households can get rebates for installing or upgrading to energy-efficient appliances. The bill also offers consumers tax credits for 10 years for clean-energy upgrades on heat pumps, rooftop solar panels, and more efficient water heaters. Soaring inflation has led to bigger bills for gas and energy, but the clean-energy initiatives in the IRA could lower those bills. According to an analysis of the IRA by Rewiring America, a nonprofit that advocates for energy efficiency, you could save up to $1,800 per year on energy bills by installing a modern electric heat pump to replace a furnace, as well as buying a heat pump for water, an electric car, and installing solar panels.
Lower Insurance Premiums and Prescription Drug Costs
For 13 million Americans with insurance under the Affordable Care Act, the bill aims to lower insurance premiums by an average of $800 a year. It would do so by giving a three-year extension to premium tax credits that were expanded during the COVID-19 pandemic with the American Rescue Plan. The bill also caps out-of-pocket spending for prescription drugs at $2,000 per year for Americans insured under Medicare, starting in 2025. “No matter what their drug bills would otherwise be, seniors will not have to spend more than $2,000,” President Biden said in a statement on Sunday. A survey conducted by The Balance in February on President Biden’s Build Back Better plan (an earlier version of the now-trimmed-down Inflation Reduction Act) showed strong bipartisan support for making health care more affordable, with 79% of those surveyed saying they think the government should lower prescription drug costs.
Will It Actually Reduce Inflation?
According to the statement by President Biden, the bill aims to pay for all of these initiatives by establishing a 15% corporate minimum tax on the wealthiest companies—those making $1 billion or more in annual revenue. Democrats say no new taxes will be imposed on small businesses or on families making $400,00 or less per year. Instead, the bill will close tax loopholes and enforce the tax code. It would give the IRS and related agencies nearly $80 billion ”to bolster taxpayer services and enforcement of the tax code,” according to the Congressional Research Service. While the bill aims to reduce costs on energy bills and health care for American families whose wallets have already been stretched thin by the highest inflation rates seen in decades, the bill is unlikely to bring prices down anytime soon. The Committee for a Responsible Federal Budget, a nonpartisan, nonprofit organization, expects the IRA to have “essentially no effect” on inflation in the short term, but said in a statement that it could lower the risk of persistent inflation over time and make it easier for the Federal Reserve to reduce inflation without making the economy go into a recession. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
