Key Provisions of the Inflation Reduction Act

The Inflation Reduction Act, or (“IRA”), which was signed into law by President Biden in August, is a sweeping piece of legislation, covering everything from climate change and healthcare to corporate tax policy. This blog provides a condensed version of key provisions of the legislation.

Healthcare

The IRA cuts out-of-pocket drug expenses for Medicare beneficiaries. For instance, it caps insulin costs for people with diabetes at $35 per month.[i] That’s not insignificant, given the Kaiser Foundation estimates insulin currently costs an average of anywhere from $334 to $1,000 per month.[ii]

The IRA also caps all prescription drug costs for Medicare Part D beneficiaries at $2,000 per year by 2025: well below the soft cap of $7,000 annually, that applies under existing law.[iii] Additionally, Medicare will be allowed to negotiate prescription drug prices with the pharmaceutical industry for the first time in history. The Congressional Budget Office (“CBO”) estimates that drug negotiations will ultimately save Medicare — and hence taxpayers — $98.5 billion from 2022–2031.[iv]

Energy & Climate

Through a series of public investments in promoting the use of clean energy and electric vehicles estimated to cost $369 billion over the coming decade, the Office of Management and Budget (“OMB”) projects that by 2030, the IRA will reduce America’s carbon emissions by 40% from 2005 levels.[v] Many of these incentives are market-based and create economic incentives through rebates and tax credits designed to encourage consumers and businesses alike to utilize clean energy sources. These incentives also will create a significant number of “green” jobs over time.

The OMB analysis also quantified how the IRA will help avoid the social and economic damages of climate change. Findings include that in addition to dramatically reducing energy prices the law could cut the social costs of climate change by up to $1.9 trillion by 2050.[vi]

All told, the Biden Administration estimates the IRA will end up saving the typical family around $500 annually in energy costs. It will also lessen our nation’s dependence on foreign oil.[vii]

Taxes

The IRA contains corporate tax increases that both pay for the aforesaid public investments and help reduce the deficit by anywhere from $102 to $300 billion over the next 10 years. Under the IRA, large corporations reporting annual book profits in excess of $1 billion for three consecutive years will be required to pay an alternative minimum tax on those profits of 15%.[viii] This would mean highly profitable companies, such as Nike and Archers Daniels Midland, that paid zero federal income taxes in 2020, would contribute to federal coffers.

Additionally, the IRA provides more funding to the Internal Revenue Service (“IRS”) to go after tax loopholes. Both the Biden Administration and IRS have confirmed that the focus of any enhanced auditing will be Americans earning more than$400,000 annually, which is beneficial since current estimates are the wealthiest 1% dodge paying an average of $160 billion in aggregate taxes that they owe annually.[ix]

Inflation Reduction

One thing the IRA does not do much of — at least initially — is reduce inflation. The elements of the legislation that will work to tamp down prices are long-term and focus on persistent inflationary pressures, rather than the more immediate transitory inflation the economy is experiencing now. Some experts question even the long-term anti-inflationary efficacy of the IRA, while others, like Moody’s Analytics, are more optimistic.

Though the IRA may not have a short-term impact on inflation, the provisions in the legislation such as those outlined above will positively impact Americans' quality of life while implementing cost-saving and revenue-generating measures.

[i] The White House, “FACT SHEET: The Inflation Reduction Act Supports Workers and Families,” The White House, August 19, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/19/fact-sheet-the-inflation-reduction-act-supports-workers-and-families/.

[ii] Anthony Damico Published: Jul 28 and 2022, “Insulin Out-of-Pocket Costs in Medicare Part D,” KFF (blog), July 28, 2022, https://www.kff.org/medicare/issue-brief/insulin-out-of-pocket-costs-in-medicare-part-d/.

[iii] Anthony Damico Published: Aug 18 and 2022, “How Will the Prescription Drug Provisions in the Inflation Reduction Act Affect Medicare Beneficiaries?,” KFF (blog), August 18, 2022, https://www.kff.org/medicare/issue-brief/how-will-the-prescription-drug-provisions-in-the-inflation-reduction-act-affect-medicare-beneficiaries/.

[iv] 2022, “Explaining the Prescription Drug Provisions in the Inflation Reduction Act,” KFF (blog), September 22, 2022, https://www.kff.org/medicare/issue-brief/explaining-the-prescription-drug-provisions-in-the-inflation-reduction-act/.

[v] “New OMB Analysis: The Inflation Reduction Act Will Significantly Cut the Social Costs of Climate Change,” The White House, accessed October 10, 2022, https://www.whitehouse.gov/omb/briefing-room/2022/08/23/new-omb-analysis-the-inflation-reduction-act-will-significantly-cut-the-social-costs-of-climate-change/.

[vi] “New OMB Analysis: The Inflation Reduction Act Will Significantly Cut the Social Costs of Climate Change,” The White House, accessed October 10, 2022, https://www.whitehouse.gov/omb/briefing-room/2022/08/23/new-omb-analysis-the-inflation-reduction-act-will-significantly-cut-the-social-costs-of-climate-change/.

[vii] The White House, “BY THE NUMBERS: The Inflation Reduction Act,” The White House, August 15, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/15/by-the-numbers-the-inflation-reduction-act/.

[viii] The White House, “BY THE NUMBERS: The Inflation Reduction Act,” The White House, August 15, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/15/by-the-numbers-the-inflation-reduction-act/.

[ix] The White House, “BY THE NUMBERS: The Inflation Reduction Act,” The White House, August 15, 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/15/by-the-numbers-the-inflation-reduction-act/.