Inflation continues to strain American families as the country grapples with the aftereffects of the COVID-19 pandemic. To overcome these challenges and face the growing concerns of a recession, the government passed the Inflation Reduction Act of 2022 on August 16.
The Inflation Reduction Act seeks to curb inflation on multiple fronts. It acts as a down payment on the U.S. deficit to combat inflation and heavily incentivizes businesses and individuals to adopt clean energy technology in an attempt to reduce carbon emissions.
Who Does it Help?
The Inflation Reduction Act targets individuals, small businesses, rural communities, and the agricultural sector for monetary relief and subsidies.
Seniors benefit the most from the Act’s mandates on healthcare and prescription drug costs.
Who Does it Hurt?
Large corporations face increased tax scrutiny as well as incentives to place more emphasis on reinvesting in themselves at the expense of shareholder returns.
The top 1% of American households should also expect to see a rise in tax rates beginning in 2023 – the Biden administration claims that no family household making $400,000 or less annually will be negatively affected by the Act.
What Does it Do?
- Homeowners can apply for consumer tax credits for installing clean energy technology into their homes (solar panels, heat pumps, and electric water heaters, etc.).
- Seniors will pay no more than $35 for monthly supplies of insulin.
- Seniors will pay no more than $2,000 annually for prescription drugs purchased at pharmacies.
- Medicare beneficiaries have access to an increased number of free vaccines.
Businesses, states, and government:
- Companies making over $1 billion in annual revenue will pay a 15% tax on their corporate book income.
- Companies will pay a 1% tax fee on any corporate stock buybacks.
- Companies focusing on renewable energy can make use of various tax subsidies.
- The research and development tax credit for small businesses increased from $250,000 to $500,000.
- The fossil fuel industry faces increased taxation and fees; crude oil and petroleum imports now come with a 16.4 cents-per-barrel tax.
- Federal land leasing for clean energy projects – and some oil/gas projects – may be granted.
- The IRS’s enforcement budget will receive $80 billion in funding over the next decade.
- The government can negotiate pricing on the 100 most expensive prescription drugs covered under Medicare.
- Drug manufacturers will have to pay Medicare rebates if they raise drug prices faster than inflation.
- The Clean Energy and Sustainability Accelerator incentivizes state-based projects centered around clean energy (EV charging stations, community-centered solar projects, etc.).
How Effective Will it Be?
The reception to the Inflation Reduction Act is mixed. Many tout its focus on incentivizing American-made clean energy technology, but others worry that some of the business-focused restrictions will hamper companies and disincentivize growth and innovation.