The Inflation Reduction Act and Its Impact on the U.S., Businesses, and Homeowners

The Inflation Reduction Act of 2022 (IRA) is a landmark United States federal law which aims to curb inflation by possibly reducing the federal government budget deficit, lowering prescription drug prices, and investing into domestic energy production while promoting clean energy¹. The bill makes the largest investment in combating climate change in U.S. history, lowers the cost of prescription drugs and raises taxes on corporations. It also lowers health care costs and energy costs for consumers and businesses². In this blog post, we will discuss the main provisions of the IRA and how it impacts the U.S., businesses, and homeowners.

Main Provisions of the IRA

The IRA covers a wide range of topics and programs, but some of the main provisions are:

• Clean energy tax credits – The IRA provides $370 billion in tax credits for various clean energy technologies and projects, such as solar, wind, geothermal, hydrogen, carbon capture, electric vehicles, energy efficiency, and green buildings. The credits are designed to incentivize private investment in clean energy and create jobs in the sector³.
• Prescription drug pricing reform – The IRA allows Medicare to negotiate lower prices for certain prescription drugs with pharmaceutical companies, and extends those lower prices to private insurers and consumers. The IRA also caps out-of-pocket drug costs for Medicare beneficiaries at $2,000 per year⁴.
• Health care affordability – The IRA expands the Affordable Care Act (ACA) subsidies for health insurance premiums and lowers the eligibility threshold for Medicaid expansion. The IRA also provides funding for home- and community-based services for seniors and people with disabilities.
• Corporate tax increase – The IRA raises the corporate income tax rate from 21% to 26.5% for companies with more than $5 million in annual income. The IRA also imposes a 15% minimum tax on corporations with more than $1 billion in annual income that report little or no taxable income. The IRA also closes various loopholes and deductions that allow corporations to avoid paying taxes.

Impact on the U.S.

The IRA is expected to have a significant impact on the U.S. economy, environment, and society. Some of the expected impacts are:

• Reducing inflation – The IRA is projected to reduce inflation by 0.3 percentage points in 2023 and 0.2 percentage points in 2024, according to the Congressional Budget Office (CBO). The CBO estimates that the IRA will reduce the federal deficit by $160 billion over 10 years by raising revenues and cutting spending.
• Combating climate change – The IRA is estimated to reduce U.S. greenhouse gas emissions by 50% by 2030 compared to 2005 levels, according to an analysis by Princeton University. The IRA will also help the U.S. meet its commitments under the Paris Agreement and lead the global effort to fight climate change.
• Creating jobs – The IRA is expected to create millions of jobs in various sectors, especially in clean energy, health care, education, and child care. According to an analysis by Moody’s Analytics, the IRA will create 4 million jobs by 2030 and increase real GDP by 1.7%.

Impact on Businesses

The IRA will affect businesses in different ways depending on their size, industry, and location. Some of the possible impacts are:

• Higher taxes for large corporations – The IRA will increase the tax burden for large corporations that make more than $5 million or $1 billion in annual income. These corporations will face higher corporate income tax rates, minimum taxes, and limitations on deductions and credits. The IRA will also impose new taxes on foreign earnings of U.S.-based multinational corporations.
• Lower costs for small businesses – The IRA will lower costs for small businesses that provide health insurance to their employees or purchase clean energy equipment or vehicles. The IRA will expand the ACA subsidies for small businesses that offer health insurance plans through the Small Business Health Options Program (SHOP). The IRA will also provide tax credits for small businesses that invest in solar panels, wind turbines, electric vehicles, or energy efficiency improvements.
• More opportunities for green businesses – The IRA will create more opportunities for businesses that produce or use clean energy technologies or products. The IRA will provide tax credits, grants, loans, and contracts for businesses that develop or deploy renewable energy, carbon capture, hydrogen, electric vehicles, green buildings, or other green solutions. The IRA will also increase the demand for green products and services from consumers and government agencies.

Impact on Homeowners

The IRA will also affect homeowners in various ways, such as:

• Lower energy costs – The IRA will lower energy costs for homeowners by providing tax credits for installing solar panels, wind turbines, geothermal heat pumps, or energy efficiency improvements in their homes. The IRA will also provide rebates for purchasing electric vehicles or energy-efficient appliances. The IRA will also increase the supply and reliability of renewable energy sources, which can lower electricity prices.
• Lower health care costs – The IRA will lower health care costs for homeowners by expanding the ACA subsidies for health insurance premiums and capping out-of-pocket drug costs for Medicare beneficiaries. The IRA will also lower prescription drug prices for all consumers by allowing Medicare to negotiate with pharmaceutical companies. The IRA will also provide funding for home- and community-based services for seniors and people with disabilities.
• More resilient homes – The IRA will help homeowners make their homes more resilient to extreme weather events and natural disasters caused by climate change. The IRA will provide grants and loans for homeowners to upgrade their homes with storm-resistant windows, doors, roofs, or foundations. The IRA will also provide funding for flood insurance and disaster relief programs.

We hope this blog post has given you an overview of the Inflation Reduction Act of 2022 and how it impacts the U.S., businesses, and homeowners. If you have any questions or comments, please feel free to leave them below. Thank you for reading The Greener Electron! 🌱

¹: Inflation Reduction Act – Wikipedia
²: FACT SHEET: The Inflation Reduction Act Supports Workers and Families
³: Inflation Reduction Act Guidebook | Clean Energy
⁴: Inflation Reduction Act of 2022 | Internal Revenue Service
: Inflation Reduction Act: Health Care Provisions
: Inflation Reduction Act: Corporate Tax Provisions
: CBO Estimate of the Inflation Reduction Act of 2022
: Princeton Study on the Climate Impact of the Inflation Reduction Act
: Moody’s Analysis on the Economic Impact of the Inflation Reduction Act
: Inflation Reduction Act: Corporate Tax Provisions
: Inflation Reduction Act: Small Business Provisions
: Inflation Reduction Act Guidebook | Clean Energy
: Inflation Reduction Act: Energy Cost Savings
: Inflation Reduction Act: Health Care Provisions
: Inflation Reduction Act: Resilience Provisions

Source:
(1) Inflation Reduction Act – Wikipedia. https://en.wikipedia.org/wiki/Inflation_Reduction_Act.
(2) Inflation Reduction Act of 2022 | Internal Revenue Service. https://www.irs.gov/inflation-reduction-act-of-2022.
(3) Inflation Reduction Act Guidebook | Clean Energy – The White House. https://www.whitehouse.gov/cleanenergy/inflation-reduction-act-guidebook/.
(4) FACT SHEET: The Inflation Reduction Act Supports Workers and. https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/19/fact-sheet-the-inflation-reduction-act-supports-workers-and-families/.