POLITICAL PULSE: THE INFLATION REDUCTION ACT

CHRISTY TARALLO

In August, President Joe Biden signed the $740 billion Inflation Reduction Act (IRA or HR 5376). After undergoing serious debate, compromise, and modification, the final version includes an amalgamation of healthcare reforms, climate change initiatives, and new taxes on businesses—some of which will affect individuals and businesses in Georgia.

Energy and climate change initiatives have been a cornerstone of the Democratic agenda for several years, as well a major part of the Biden Administration’s “Build Back Better” plan, and lawmakers found a way to use the IRA to achieve their ends. While the IRA is a toned-down version of previous climate change reform proposals, it includes investments in climate protection and tax credits for both households and companies, to the tune of $369 billion.

The green business incentives found in the bill include $10 billion for qualified investment tax credits aimed at reducing commercial carbon production. Some models project that these subsidies may cut US carbon emissions by some 40% by 2030. In addition to the encouragement to move towards more environmentally friendly practices through tax credits and subsidies, the bill raises the superfund tax on crude oil and imported petroleum to 16.4 cents a barrel and increases some other taxes and fees on the fossil fuel sector.

The IRA’s climate friendly incentives for individuals include a tax credit of up to $7,500 for electric vehicle (EV) purchases, credits for upgrading a home’s electric panel to handle EV charging, and qualifying energyefficient home project and product upgrades. However, the rebates

and credits offered to individuals for efficiency projects and purchases involve some major restrictions, such as income threshold limits and manufacturing requirements for EVs. In fact, some car manufacturers have voiced concerns over the qualifications for the EV tax credits and see the “buy American” provisions—including the requirement that minerals for EV batteries be sourced in America, among other pro-US manufacturer qualifications—as a potential impediment for consumers who want to utilize the available EV credits.

For businesses, those that are moving to retrofit existing facilities to become more energy efficient will similarly be eligible for various tax credits, and any companies looking to build green facilities with clean energy sources are also eligible for energy credits. These credits include a clean hydrogen production credit and a clean electricity credit, among others. Many of the tax incentives for green energy production, however, are aimed at encouraging increased US manufacturing of solar panels, wind turbines, batteries, and critical minerals processing. The IRA also includes nearly $30 billion in targeted grant and loan awards for states and electric co-ops to transition to clean electricity.

The bill’s authors attempted to only levy increased taxes on the wealthiest businesses, and the measure stands poised to generate revenue through a variety of sources. HR 5376 is estimated to raise nearly $740 billion over the next decade through new taxes on large corporations and stricter enforcement by the IRS. Moody’s Analytics projects that simply strengthening IRS enforcement alone has the potential to “reduce the cumulative deficit by $124 billion over 10 years.”

The IRA also creates a new 15% corporate minimum tax (CMT) on publicly traded corporations with profits of more than $1 billion, which will be levied on book income rather than on taxable income. Moody’s projects this new corporate minimum tax may result in an estimated $313 billion of increased revenue over 10 years. In addition to the CMT, HR 5376 imposes a new 1% excise tax, termed a “stock buybacks fee”, on publicly traded US corporations on the market value of shares repurchased by a corporation. Finally, the IRA extends the limitation on pass-through business losses created under the 2017 Tax Cuts and Jobs Acts through 2028. It’s worth noting that the contested tax proposal on the investments of private equity and hedge funds did not make the final version of the bill.

The third major pillar of HR 5376 accomplishes some major healthcare objectives for Democrats. Beginning in 2025, Medicare will be allowed to negotiate the price of certain prescription drugs and Medicare recipients will enjoy an annual cap of $2,000 for out-of-pocket prescription drug costs. The Inflation Reduction Act also includes an extension of subsidies for Affordable Care Act (ACA) premiums. The federal government has had a subsidy program aimed at lowering medical insurance premiums under ACA that was set to expire this year; however, the IRA has extended that program until 2025.

As far as the bill’s name is concerned, the University of Pennsylvania’s Wharton School of Business estimates that the Inflation Reduction Act will “reduce annual inflation by around 0.1 percentage points in about five years” and that the “impact on inflation is statistically indistinguishable from zero.”