Inflation Reduction Act: what you need to know

Inflation Reduction Act

Inflation, inflation, inflation. It often feels like we can't escape hearing about it. The past few months, we’ve seen prices skyrocket across everyday goods and services (especially food & gas) and there hasn’t seemed to be an end in sight. But recent legislation has hopes running high that things might be about to change. On August 16th 2022, Congress passed the Inflation Reduction Act—but many consumers are confused about what that Act will actually do.

So what exactly is included in this Act, and how will it affect Americans? Here's a quick rundown of the main areas covered by the Inflation Reduction Act.

Healthcare costs

One of the country's long-standing issues is the rising cost of healthcare and prescription drugs. Although it's not as an extreme of a change that many are hoping for, the Inflation Reduction Act includes the following provisions to help lower these vital costs for families:

• Capping out-of-pocket prescription drug costs for people insured by Medicare at $2,000 a year. This measure will mainly benefit seniors with chronic illnesses requiring heavy, frequent medication.
• Capping insulin costs for Medicare beneficiaries with diabetes at $35 a month.
• Helping to control prescription drug costs by allowing Medicare to negotiate the prices of some key drugs directly with pharma companies.
• Extending subsidies granted by the Affordable Care Act, designed to help cover the rising cost of health insurance premiums that were due to expire next year.

Many of these provisions will not come into effect immediately, but the intention is to start chipping away at the high cost of healthcare and prescription drugs, which will significantly help the most vulnerable.

Climate change

The White House has stated that this Act represents the largest investment in renewable energies to address the climate crisis in the nation's history. The goal is to create millions of new jobs and spur economic growth while transitioning the country to clean energy.

The Inflation Reduction Act includes provisions for:

• Providing tax credits for families that invest in renewable energy in the home. People who install solar panels, heat pumps, or wind energy systems for their houses will receive up to 30% tax credit until 2032. This measure will help people save money on their energy bills while reducing emissions.
• Offering tax credits for investment in electric vehicles. People who switch to electric cars to make their commute greener will be able to receive a tax credit as of 2023, whether they invest in a new or used vehicle.
• Offering incentives for businesses that invest in clean energies. This includes tax credits for investment in solar, geothermal, wind energy, biogas, or battery storage. The Act also offers tax credits for those investing in technology that captures carbon from fossil fuel power plants and incentives for those deploying carbon-free energy sources.
• Providing financial support to businesses reducing methane gas. Companies that invest in reducing methane emissions from oil and gas can receive government loans and grants to support these efforts.

These measures are an excellent start to addressing the climate crisis, putting the country on track to meet the President's climate goals. According to White House estimations, these provisions will save families an average of $500 per year on energy costs in the mid-term.

Fiscal measures

The Inflation Reduction Act also includes several fiscal measures to help improve the economy and pay for renewable energy and healthcare investments. These include the following actions:

• Reducing the federal deficit. By cutting certain spending and making changes to taxation, the Act aims to reduce the deficit by hundreds of billions, which can help to fight inflation and stimulate economic growth.
• Establishing a minimum tax on corporations. The Act establishes a minimum tax of 15% on the profits of large corporations making over $1 billion, which they expect will bring in $300 billion in revenue.
• Increasing funding for the Internal Revenue Service. By spending more on the IRS to increase its capabilities, the Congressional Budget Office estimates to collect $124 billion over ten years in taxes already owed by wealthy individuals or corporations.

The tax measures included in the Act target corporations and the wealthy in an effort to fund social programs and reduce the deficit, while the aim is that no family with an income under $400,000 will have to pay more taxes.

Overall, the Act aims to address key issues that will help lower inflation in the mid-long term. The investments in renewable energy and healthcare are significant and can positively impact the economy, the environment, and job creation.