On Friday, Aug. 12, the House of Representatives passed the Inflation Reduction Act of 2022—and soon it will be signed into law by President Joe Biden.
The bill is a major accomplishment for Democrats who have been struggling for months to pass Biden’s ambitious social and climate policies, as well as his vision to raise taxes for the rich. The legislation includes large investments in making health care and prescription drugs more affordable, fighting climate change and taxing wealthy corporations.
While its name claims it will tame soaring inflation, estimates show that the bill likely won’t do much to reduce prices. But it remains a significant piece of legislation that accomplishes some initiatives that have been mired in congressional debate for decades.
What’s in the Inflation Reduction Act
The Inflation Reduction Act is a slimmed-down version of the Build Back Better bill, which aimed to make historic investments in the nation’s social safety net. The new bill makes the largest investment in combating climate change in U.S. history, lowers the cost of prescription drugs and raises taxes on corporations.
Here are the big provisions:
- Creation of a 15% corporate minimum tax rate: Corporations with at least $1 billion in income will have a new tax rate of 15%. Taxes on individuals and households won’t be increased. Stock buybacks by corporations will face a 1% excise tax.
- Prescription drug price reform: One of the most significant provisions of the Inflation Reduction Act will allow Medicare to negotiate the price of certain prescription drugs, bringing down the price beneficiaries will pay for their medications. Medicare recipients will have a $2,000 cap on annual out-of-pocket prescription drug costs, starting in 2025.
- IRS tax enforcement: The IRS has been sounding the alarm for years about being underfunded and being unable to deliver on its duties. The bill invests $80 billion in the nation’s tax agency over the next 10 years.
- Affordable Care Act (ACA) subsidy extension: Currently, medical insurance premiums under the ACA are subsidized by the federal government to lower premiums. These subsidies, which are scheduled to expire at the end of this year, would be extended through 2025. Approximately 3 million Americans could lose their health insurance if these subsidies aren’t extended, according to the U.S. Department of Health and Human Services.
- Energy security and climate change investments: The bill includes numerous investments in climate protection, including tax credits for households to offset energy costs, investments in clean energy production and tax credits aimed at reducing carbon emissions.
The bill passed with all 50 Democratic votes in the Senate on Aug. 7. Democrats were able to secure two key votes, from Senators Joe Manchin (D-W.Va) and Kyrsten Sinema (D-AZ), after the pair opposed earlier versions of the bill. Sinema, the last party holdout, expressed support for the bill after the carried-interest loophole provision was dropped. The bill was successfully passed in the Senate without Republican support under the reconciliation process.
The House passed the bill 220-207 on Aug. 12; it will now be passed to Biden’s desk to be signed into law.
Study Shows Bill Will Likely Have No Impact on Inflation
In a statement released after the Senate’s passage of the bill, Biden asserted that the legislation would bring inflation relief to Americans. But one early study shows that in reality, the Inflation Reduction Act likely won’t reduce prices at all.
According to the Penn Wharton Budget Model (PWBM), there’s low confidence the legislation will have any impact on inflation. PWBM is a nonpartisan, research-based organization at the University of Pennsylvania that creates economic analysis of public policy’s fiscal impact.
During an interview with CNN, Manchin said he “respectfully disagrees” with the study.
According to the Congressional Budget Office (CBO), a federal agency that provides budget and economic information to Congress, the bill will barely make a dent on inflation in the near term—and could even nudge it upward.
The CBO estimates it will have a “negligible effect on inflation” in 2022, and in 2023 it will change inflation somewhere between 0.1 percentage point lower and 0.1 percentage point higher than it is currently.
Even if it won’t move the needle on inflation, the CBO also estimates the bill will decrease the deficit by more than $100 billion over the next decade. The federal government ran a deficit of $2.8 trillion in 2021, according to the Bipartisan Policy Center; the bill’s estimated deficit reduction will wipe out about 4% of that.
Though the bill may fall short of bringing immediate price relief to consumers, it’s monumental in other ways. According to The Wilderness Society, a nonprofit land conservation organization established in 1935, the Inflation Reduction Act is described as a “breakthrough” on climate policy.
Editors’ note: In the first version of this story, we said that Sen. Kyrsten Sinema was senator for Nevada. She is senator for Arizona. We apologize for the error.
On Friday, Aug. 12, the House of Representatives passed the Inflation Reduction Act of 2022—and soon it will be signed into law by President Joe Biden.
The bill is a major accomplishment for Democrats who have been struggling for months to pass Biden’s ambitious social and climate policies, as well as his vision to raise taxes for the rich. The legislation includes large investments in making health care and prescription drugs more affordable, fighting climate change and taxing wealthy corporations.
While its name claims it will tame soaring inflation, estimates show that the bill likely won’t do much to reduce prices. But it remains a significant piece of legislation that accomplishes some initiatives that have been mired in congressional debate for decades.
What’s in the Inflation Reduction Act
The Inflation Reduction Act is a slimmed-down version of the Build Back Better bill, which aimed to make historic investments in the nation’s social safety net. The new bill makes the largest investment in combating climate change in U.S. history, lowers the cost of prescription drugs and raises taxes on corporations.
Here are the big provisions:
- Creation of a 15% corporate minimum tax rate: Corporations with at least $1 billion in income will have a new tax rate of 15%. Taxes on individuals and households won’t be increased. Stock buybacks by corporations will face a 1% excise tax.
- Prescription drug price reform: One of the most significant provisions of the Inflation Reduction Act will allow Medicare to negotiate the price of certain prescription drugs, bringing down the price beneficiaries will pay for their medications. Medicare recipients will have a $2,000 cap on annual out-of-pocket prescription drug costs, starting in 2025.
- IRS tax enforcement: The IRS has been sounding the alarm for years about being underfunded and being unable to deliver on its duties. The bill invests $80 billion in the nation’s tax agency over the next 10 years.
- Affordable Care Act (ACA) subsidy extension: Currently, medical insurance premiums under the ACA are subsidized by the federal government to lower premiums. These subsidies, which are scheduled to expire at the end of this year, would be extended through 2025. Approximately 3 million Americans could lose their health insurance if these subsidies aren’t extended, according to the U.S. Department of Health and Human Services.
- Energy security and climate change investments: The bill includes numerous investments in climate protection, including tax credits for households to offset energy costs, investments in clean energy production and tax credits aimed at reducing carbon emissions.
The bill passed with all 50 Democratic votes in the Senate on Aug. 7. Democrats were able to secure two key votes, from Senators Joe Manchin (D-W.Va) and Kyrsten Sinema (D-AZ), after the pair opposed earlier versions of the bill. Sinema, the last party holdout, expressed support for the bill after the carried-interest loophole provision was dropped. The bill was successfully passed in the Senate without Republican support under the reconciliation process.
The House passed the bill 220-207 on Aug. 12; it will now be passed to Biden’s desk to be signed into law.
Study Shows Bill Will Likely Have No Impact on Inflation
In a statement released after the Senate’s passage of the bill, Biden asserted that the legislation would bring inflation relief to Americans. But one early study shows that in reality, the Inflation Reduction Act likely won’t reduce prices at all.
According to the Penn Wharton Budget Model (PWBM), there’s low confidence the legislation will have any impact on inflation. PWBM is a nonpartisan, research-based organization at the University of Pennsylvania that creates economic analysis of public policy’s fiscal impact.
During an interview with CNN, Manchin said he “respectfully disagrees” with the study.
According to the Congressional Budget Office (CBO), a federal agency that provides budget and economic information to Congress, the bill will barely make a dent on inflation in the near term—and could even nudge it upward.
The CBO estimates it will have a “negligible effect on inflation” in 2022, and in 2023 it will change inflation somewhere between 0.1 percentage point lower and 0.1 percentage point higher than it is currently.
Even if it won’t move the needle on inflation, the CBO also estimates the bill will decrease the deficit by more than $100 billion over the next decade. The federal government ran a deficit of $2.8 trillion in 2021, according to the Bipartisan Policy Center; the bill’s estimated deficit reduction will wipe out about 4% of that.
Though the bill may fall short of bringing immediate price relief to consumers, it’s monumental in other ways. According to The Wilderness Society, a nonprofit land conservation organization established in 1935, the Inflation Reduction Act is described as a “breakthrough” on climate policy.
Editors’ note: In the first version of this story, we said that Sen. Kyrsten Sinema was senator for Nevada. She is senator for Arizona. We apologize for the error.
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