Inflation Reduction Act of 2022

The Inflation Reduction Act of 2022 is a piece of legislation signed into law by President Joe Biden on August 16, 2022. Some of the major goals of the bill were to lower prescription drug prices, lower healthcare costs, offer tax incentives and rebates for families who invest in clean energy, and implement a tax code that will target the wealthy and large corporations. While experts generally agree that the Inflation Reduction Act is a significant piece of legislation, they pointed out a few shortcomings. First, some of the benefits will not be seen by Americans for several years. Second, several experts agreed that the law’s impact on soaring inflation will be minimal. The bill was passed by the House and Senate through a process called reconciliation, and was later signed into law by Biden. The measure was the twenty-eighth reconciliation bill passed by Congress since the process began in 1974.

Background

On August 16, 2022, President Joe Biden signed the Inflation Reduction Act of 2022 into law. This legislation approved more than $700 billion in federal investments. The goals of the act were to reduce the national deficit, fight against climate change, and lower health care costs.

Prior to being signed by Biden, the bill was passed in both the US Senate and House of Representatives through a process known as reconciliation. The bill was passed in the Senate without Republican support. The House passed the bill on August 12 with a 220–207 vote, also without Republican support.

Reconciliation allows Congress to quickly pass legislation that deals with national revenues, spending, and/or the federal debt limit. Reconciliation begins when the House and Senate pass an annual budget plan that includes taxes, spending guidelines, and the debt limit. This is known as a budget resolution. The budget resolution specifies a time period, with the most common being ten years.

A budget resolution only moves into the process of reconciliation if it includes reconciliation directives. Reconciliation directives are instructions for a particular congressional committee to create laws that would change revenues, spending, deficits, and/or the public debt limit. Multiple committees may receive these instructions, and each one will send their bills to the House and Senate Budget Committees. These committees combine everything into a reconciliation bill.

Reconciliation bills speed up the legislation process, and are thus subject to the Byrd Rule. This lets senators object to certain provisions. These include provisions that don’t change revenues, spending, or the debt limit, or do change them but in a “merely incidental” way; increase the deficit when a committee hasn’t reached its reconciliation target; is outside of the authority of the submitting committee; increases fiscal year deficits that are outside the reconciliation window; or makes changes to the Social Security program. A nonpartisan Senate member will decide whether an objected provision violates the Byrd Rule. If it does, it will be removed. However, a vote of sixty senators can overrule an objection.

In order to pass, a reconciliation bill must win a simple majority vote in the House and Senate. The Senate has only twenty hours to debate the bill. Next, it goes into a “vote-a-rama” where senators can propose amendments to the bill. After all of the amendments are heard, the bill can go to a vote. After passing in the Senate and House, the bill goes to the president to sign or veto.

Since 1974, when the process began, Congress has passed twenty-eight budget reconciliation bills. Of those, twenty-two were signed by the sitting president. One example of a reconciliation bill that was vetoed by the president is a 2016 bill aimed at repealing major provisions of the Affordable Care Act (ACA). While this passed both the House and Senate, it was vetoed by President Barack Obama. Both Democrats and Republicans have utilized the reconciliation process.

Impact

One impact of the Inflation Reduction Act of 2022 was the continuation of Affordable Care Act (ACA) premium subsidies, which lower the cost of health insurance. These were set to expire at the end of 2022, but were extended until 2024. The Inflation Reduction Act invests $64 billion to this end. According to the White House, 13 million Americans will continue to save an average of $800 per year on health insurance premiums because of the act. In addition, three million more Americans will have health insurance because of the law, according to the White House.

The act will also take on prescription drug care costs by authorizing Medicare to negotiate the prices of prescription drugs. The bill also adjusts the annual cap that Medicare enrollees pay for out-of-pocket costs for prescription drugs to $2,000. This was previously $7,050, with a 5 percent coinsurance on prescriptions after this cap was met.

The Inflation Reduction Act strategy to combat climate change includes building a clean energy economy and reducing pollution, and will invest $369 billion to this end. The bill aims to power homes businesses and communities with significantly more clean energy by 2030. This would include 950 million solar panels, 120,000 wind turbines, and 2,300 grid-scale battery plants.

One way the bill attempts to expand clean energy is by offering Americans rebates and tax credits. Clean energy and electric vehicle tax credits can save families more than $1,000 a year, according to the White House. The bill will also provide $14,000 in direct consumer rebates to families who invest in heat pumps or other energy-efficient home appliances. This is estimated to save families at least $350 per year. According to the White House, 7.5 million more families will be able to install rooftop solar thanks to tax credits that are estimated to save $9,000 over the life of a solar panel system. This equates to at least $300 per year. Consumers can also receive $7,500 in tax credits when they purchase a new electric vehicle or $4,000 in tax credits when they purchase a used electric vehicle. This is estimated to save families $950 per year. The administration also claims that the bill will save every family in the United States an average of $500 per year on energy costs while putting America on track to meet President Biden’s climate goals. Oil and gas companies will also receive incentives to reduce methane emissions while being charged a fee for excess methane emissions. Subsidies will also be offered for emission reduction in agriculture, chemical, steel, and cement plants.

The bill also aims to reduce greenhouse gas emissions by a billion metric tons by 2030. This will have ten times more climate impact than any other piece of legislation enacted in the United States, according to the White House. It also aims to build climate resilience through land conservation, protecting nearly 2 million acres of national forests. Overall, the law’s energy related actions are estimated to reduce U.S carbon emissions by 40 percent, compared to 2005 levels by 2030.

In addition to energy and climate, the Inflation Reduction Act aims to create what supporters call a more fair tax code. According to the White House, it will stop the wealthy from evading tax obligations. At the same time, no family making less than $400,000 will see an increase in taxes. A few ways the act plans to address taxes are by pursuing “tax dodgers,” ensuring wealthy people and corporations pay taxes already owed; cracking down on large corporations that pay little to no federal income tax; instituting a minimum corporate tax of 15 percent on corporations making at least $1 billion; and creating a 1 percent surcharge on corporate stock buybacks, which the administration says will encourage businesses to invest instead of making CEOs richer or funneling profits to shareholders.

The Inflation Reduction Act aims to reduce the federal deficit by $300 billion. The act will raise revenue through its 15 percent minimum tax on corporations, which is projected to raise at least $1 billion. It will raise additional money by investing $80 billion over a decade to improve the Internal Revenue Service enforcement, including hiring and training new auditors, modernizing outdated technology, and improving taxpayer services.

Shortcomings and Debate about Claims

The White House said the package would address inflation by lowering energy and health care costs while also helping to bring down the deficit; however, according to a study by the Penn Wharton Budget Model (PWBM) at the University of Pennsylvania, the bill likely will not do much to lower the inflation rate. The model predicted the bill’s effect on inflation would be “statistically indistinguishable from zero.” Meanwhile, the Congressional Budget Office (CBO), said the bill will barely reduce inflation in the short term, and could even increase it. According to the non-partisan CBO, in 2023 the bill will change inflation between .1 percent higher or lower than it was when the bill was passed. The CBO still acknowledges that the bill will likely decrease the deficit by $300 billion over 10 years.

Articles in Forbes Adviser magazine and NPR also noted that savings from some provisions in the bill will not kick in for a few years. For instance, the caps on prescription drug prices for seniors will not take effect until 2025.

The bill was passed with the United States dealing with the highest inflation levels since the early 1980s. Despite the bill’s name, most experts say that it does nothing to actually address the economic factors driving the inflationary spike in 2022. These factors include soaring gas, food, and rent costs.

Bibliography

Binder, Carola. “‘Inflation Reduction Act’ — What’s in a Name?” The Hill, 2 Aug. 2022, thehill.com/opinion/finance/3586116-inflation-reduction-act-whats-in-a-name/. Accessed 16 Sept. 2022.

“By the Numbers: The Inflation Reduction Act.” White House, 15 Aug. 2022, www.whitehouse.gov/briefing-room/statements-releases/2022/08/15/by-the-numbers-the-inflation-reduction-act/. Accessed 16 Sept. 2022.

“Fact Sheet: The Inflation Reduction Act Supports Workers and Families.” White House, 19 Aug. 2022, www.whitehouse.gov/briefing-room/statements-releases/2022/08/19/fact-sheet-the-inflation-reduction-act-supports-workers-and-families/. Accessed 16 Sept. 2022.

Goldman, Rebecca. “What Are the Inflation Reduction Act and Budget Reconciliation?” League of Women Voters, 1 Sept. 2022, www.lwv.org/blog/what-are-inflation-reduction-act-and-budget-reconciliation. Accessed 16 Sept. 2022.

Kim, Juliana. “What the Inflation Reduction Act Does and Doesn't Do about Rising Prices.” NPR, 13 Aug. 2022, www.npr.org/2022/08/11/1116229743/inflation-reduction-act-questions-answered. Accessed 16 Sept. 2022.

Rugaber, Christopher, and Josh Boak. “Inflation Reduction Act May Have Little Impact on Inflation.” Associated Press, 16 Aug. 2022, apnews.com/article/inflation-biden-health-congress-climate-and-environment-63df07e15002c01fb560a6f0e69fcb03. Accessed 16 Sept. 2022.

Smith, Kelly Anne. “The Inflation Reduction Act Is Now Law—Here’s What It Means for You.” The Council of State Governments, 23 Aug. 2022, www.forbes.com/advisor/personal-finance/inflation-reduction-act/. Accessed 16 Sept. 2022.

“Understanding the Inflation Reduction Act.” The Council of State Governments, 16 Aug. 2022, www.csg.org/2022/08/16/understanding-the-inflation-reduction-act/. Accessed 16 Sept. 2022.