The Inflation Reduction Act is now law (August 16th). The final votes in the House and Senate were 220-207 and 51-50, respectively. For both chambers, all Democrats voted for the legislation and all voting Republicans opposed.
The IRA is a massive budget reconciliation bill that combines revenue-raising tax changes with the distribution of new resources for healthcare, climate, and budget deficit reduction purposes.
Core Elements of the IRA
Here are core elements of the IRA include:
A 15% corporate minimum tax, which will address current-law situations where some corporations with current-law tax exemptions and loopholes end up paying little or no Federal taxes at all. Advanced manufacturing will receive special treatment under this proposal per a negotiated agreement with Senator Kyrsten Sinema (D-AZ).
A 1% excise tax on stock buybacks by corporations, a proposal in the House-passed version of budget reconciliation (November 2021) before the original negotiations on a compromise bill with the Senate began (and eventually broke down).
Authority for Medicare to negotiate drug prices starting in 2023 initially for the ten highest-cost medications, increasing gradually to the top 20 highest-cost medications; and caps annual Medicare Part D costs at $2,000 per year. A provision that would have enable drug price negotiation outside for Americans not in the Medicare program did not pass because it required some Republican Senator support overcome Senate process procedural hurdles. The same is true for a provision to cap insulin costs at $35 per month for persons outside of Medicare.
An extension of reduced ACA/Obamacare health care premiums for three years that were scheduled to increase after 2022 (until the end of 2025).
The allocation of budget savings and new revenue totaling at least $300 billion towards Federal budget deficit reduction.
The allocation of $4 billion for western drought resiliency. According to a press release by Senator Mark Kelly (D-AZ), funding can be used to "compensate farmers who voluntarily reduce their water deliveries under short-term or multi-year agreements, as well as projects that conserve water in Lake Mead and Lake Powell" and for projects such as those that "mitigate the environmental effects of shrinking inland waterbodies like the Salton Sea and the Great Salt Lake."
New funding estimated at about $370 billion to be used for energy efficiency and clean energy activities that proponents claim will lead to 40% emissions reductions in the United States by the year 2030. Examples of the key energy efficiency and clean energy investments include:
$9 billion in consumer home energy rebate programs.
10 years of consumer tax credits for home energy efficiency and clean energy improvements.
A $4,000 consumer tax credit for lower/middle income individuals to buy used clean vehicles, and a $7,500 tax credit to buy new clean vehicles.
$30 billion worth of production tax credits to accelerate U.S. manufacturing of solar panels, wind turbines, batteries, and critical minerals processing.
$10 billion worth of investment tax credits to build clean technology manufacturing facilities, such as facilities making electric vehicles, wind turbines and solar panels.
$20 billion in loans to build new clean vehicle manufacturing facilities.
$30 billion in targeted grant and loan programs for states and electric utilities to accelerate the transition to clean electricity.
$20 billion to support climate-smart agriculture practices.
Deficit Reduction Claim
The IRA includes $300 billion in budgetary savings over ten years for deficit reduction, but a recent Congressional Budget Office (CBO) cost estimate (August 5th) provided that actual reduction to the deficit will net out to only about $90 billion over ten years (this estimate will be updated in the near future). While a significant difference, neither number is particularly meaningful in the context of the Federal budget deficit which currently is estimated to end this year (2022) at about $1 trillion (August OMB estimate).
Fine Print on Energy Incentives
While the proposal would lead to substantial investments in energy efficiency and clean energy, there were demands (reportedly by Senator Joe Manchin: D-WV) for certain concessions for the oil and gas sector.
Among other things, the proposal requires the Federal Government to hold oil and gas lease sales as a condition for selling leases for renewable energy on public lands and waters. Specifically, to enable new onshore wind and solar development on Federal lands, onshore drilling lease sales will be required. New offshore wind energy leases will require corresponding lease sales for offshore drilling. The bill also requires the president to establish 25 “priority” projects on federal lands that must include fossil fuels and nuclear energy.
The Federal Government will be specifically required to reinstate the results of Gulf of Mexico offshore drilling lease 257, which was awarded last November and was struck down by courts on environmental grounds. In addition, the Federal Government is required to “take all necessary actions to permit the construction and operation” of the Mountain Valley (West Virginia) Pipeline project.
Environmental reviews, overall, would be streamlined with a two-year time limit for any challenges on projects with a major impact, and a one year time limit for less significant projects. States will have a one-year time limit to object to infrastructure projects that run through their waters, though water quality impacts of the activity must be the basis of the review.
The details behind how many of the provisions of this legislation (e.g., green power generation incentives) could take months to develop, though some guidance is already starting be released. For example, Treasury issued "initial information" (August 16th) for consumers on electric vehicle tax credits, which start in January.