Sen. Joe Manchin’s support for the Inflation Reduction Act of 2022 has given the general populace hope for progress on climate change, health care and tax reform, though Sen. Kirsten Sinema, D-Ariz., could still potentially sink the bill. (The Koch network is lobbying both Manchin and Sinema to change their minds.)
However, climate activists decry that it is not enough.
The compromise bill pulls back on the more ambitious climate measures and the price of Manchin’s support was to funnel government money to fossil fuels. But, the legislation offers incentives to individuals and corporations alike to go green and the enshrined policies are expected to cut U.S. greenhouse gas emissions by 40% before the end of the decade. With climate change officially an immediate crisis, something is better than nothing, so we’ll take what we can get.
The IRA is a mixed bag with a lot in it, so we’ll touch on a few things.
◘ Offers direct incentives to individuals to purchase electric vehicles: an up-to $7,500 tax credit for buying new or up-to $4,500 for buying used. Electric cars are becoming increasingly efficient in terms of miles per charge, making newer models a more realistic option for rural areas. There’s also a corporate incentive/tax credit for companies developing renewable fuel alternatives to gasoline.
◘ Offers homeowners rebates of up to $4,000 or $8,000 (depending on income level) for making improvements that make their houses 35% more energy efficient. This includes installing things like solar panels, heat pumps (which are getting much better) and energy efficient water heaters and/or HVAC systems.
◘ Restores the renewable energy production tax credit (PTC), which expired at the end of 2021, to encourage wind, solar, geothermal, hydroelectric and even nuclear power production. The PTC also offers additional credits if facilities meet wage and apprenticeship requirements and use U.S.-sourced materials.
◘ Creates a minimum 15% corporate tax on businesses that make $1 billion or more. The new minimum targets company profits and is expected to collect more than $300 billion in tax revenue.
◘ Sends $80 billion to the Internal Revenue Service. Believe it or not, this is a highlight. A chronically underfunded and understaffed IRS has to pick and choose its battles; it’s easier to audit individuals and small businesses than it is massive corporations or billionaires who have entire teams of lawyers dedicated to legal tax evasion. A well-funded and well-staffed IRS has the resources to go after the heavy hitters and is more likely to leave the rest of us alone.
◘ Allows Medicare to negotiate drug prices — or set the price, in some cases — and caps out-of-pocket costs for Medicare recipients to $2,000. (Of course, we think there are steps Congress can take to lower prescription drug costs for everyone — see the July 28 editorial for more information.) The IRA also extends the lower premiums available from the Affordable Care Act through 2025.
◘ Gives tax credits for carbon capture and sequestration, which (theoretically) allows coal- and gas-fired plants to significantly reduce carbon output. Carbon capture technology can be up to 90% efficient, but storing the carbon gets complicated and the process itself isn’t always carbon neutral.
◘ Will fight inflation — just not immediately. The University of Pennsylvania’s Penn Wharton Budget Model predicts inflation will increase another 0.05 percentage points (so to roughly 9.15% overall) through 2024. However, the plan is expected to decrease inflation by 0.25 percentage points after that (down to 8.9% in 2025, 8.65% in 2026, etc.), though other factors could bring inflation down before then.
◘ Opens up the Gulf of Mexico and Alaska’s Cook Inlet for more drilling. Not something climate activists want to see, but it may need to be tolerated as a necessary evil. With sanctions continuing on Russian crude oil, production in other nations must ramp up to meet demand.
Considering everything the IRA does — plus paying for itself and putting $300 billion toward reducing the federal deficit — the tradeoffs will ultimately be worth it.