The Inflation Reduction Act (IRA) marks the latest federal effort to help families make ends meet while delivering transformative investments to create a fairer tax system and combat the climate crisis. This legislation, signed by President Joe Biden in mid-August, includes essential and long-sought provisions to lower health care and prescription costs and ensure that wealthy people and profitable corporations are paying their share to fund a more equitable future.
Addressing barriers that are keeping everyday folks from economic recovery is long overdue. With rising costs and slow economic growth, many people are still struggling to meet basic needs and provide for their families. Low-income and Black, Indigenous, and People of Color (BIPOC) families are more likely to face financial hardship and are increasingly unable to afford essential goods and services.
Investments in economic security and climate response funded by raising taxes on those with the most resources
The Inflation Reduction Act generates revenue through provisions to ensure that wealthy people and profitable corporations are paying their share to support the recovery, and uses these revenues to lower costs for families and seniors and tackle pressing issues like climate change. The bill would also reduce the federal deficit by $238 billion over the next decade.
The Act creates a fairer tax code in three ways:
- Requiring profitable large corporations to pay a 15 percent minimum tax. In April 2021, the Institute on Taxation and Economic Policy (ITEP) reported that 55 of the largest corporations in the United States paid zero federal corporate income taxes in 2020 despite earning record profits. Requiring corporations earning above $1 billion in profits over the previous three years to pay a minimum tax helps prevent profitable corporations from avoiding corporate taxes and would raise revenue to fund investments that build a stronger economy and future for us all.
- Instituting a 1 percent surcharge on corporate stock buybacks. This provision encourages businesses to invest in the long-term growth of their company and workers, rather than purchasing their own shares in the stock market. This provision ensures that income transferred from corporations to shareholders, who are more likely to be high-income, does not go untaxed.
- Increasing funding for the Internal Revenue Service (IRS) to enhance tax services and enforce the tax code to ensure that wealthy people and profitable corporations pay what they owe. This funding will improve customer service to taxpayers and increase compliance with the country’s tax laws. The Center on Budget and Policy Priorities reports steep budget cuts to the IRS made since 2010 have led to steep cuts in audit rates of high-income individuals and large corporations.
Lowering health care costs for Americans and their families
The Inflation Reduction Act contains a package of policies that would reduce health care costs. The Act would allow Medicare to negotiate lower prices for some high-cost drugs, reducing out-of-pocket costs for seniors and people with disabilities. The Act also protects Medicare beneficiaries from drastic increases in high drug costs by requiring pharmaceutical companies to not increase drug prices faster than inflation, and caps the price of insulin for Medicare participants at $35 per month. The legislation caps annual premiums for Part D, a portion of Medicare that helps participants pay for prescription drugs, at $2000 annually starting in 2025, and limits premium increases.
The IRA also prevents sharp increases in health care premiums and improves premium tax credits for working families, helping millions of Americans afford the health care they need. The bill maintains improvements to premium tax credits that were part of the American Rescue Plan Act (ARPA), which otherwise would expire by the end of 2022. Premium tax credits bring down the cost of health insurance for eligible folks by capping how big a share of their income they spend on health insurance premiums. Premium tax credits are typically available to households with incomes between 100 and 400 percent of the federal poverty level, who are U.S. citizens or legal residents, and are not eligible for other qualifying insurance. For example, a family of three must have an annual income of $23,030 to $92,120 to qualify for premium tax credits. The bill continues ARPA’s increases to premium tax credits that people can receive and extends eligibility to include families above 400 percent of the poverty line until 2026. With the extension of ARPA improvements to premium tax credits, the Act allows about three million people to retain their coverage who might have otherwise lost it.
Provisions to lower energy costs and tackle the climate crisis
The legislation aims to both bring down energy costs for everyday families and tackle the climate crisis by including tax credits and rebates to cover the costs for energy efficient equipment and appliances, solar panels, and electric vehicles.
The Act expands clean energy tax credits such as the Solar Tax Credit, which encourages the use of clean energy by returning some of the costs that families incur when they install solar panels on their roofs. The Act also seeks to improve clean transit systems and offers tax credits to bring down the cost of new and used electric vehicles, with the goal of ultimately lowering energy costs for families.
Environmental justice components of the bill include provisions to reduce pollution at public schools and funding community-led projects to address environmental and public health concerns, particularly for low-income and BIPOC communities who suffer disproportionately from pollution and climate change.
The Act is expected to reduce greenhouse gas emissions by about a billion metric tons by 2030, setting the nation on track to cut climate pollution in half by 2030.
Bill leaves important work yet to do
Unfortunately, through the process of negotiation to get to passage of this legislation, important policies were left out. A provision to ensure that hedge fund managers and others who are able to structure their income as “carried interest” and thereby pay lower tax rates than ordinary workers was left on the cutting-room floor. Also left out were proposals to continue ARPA’s high-impact policies that reduce child poverty through an expanded Child Tax Credit, and expanding the Earned Income Tax Credit to boost the incomes of low-wage workers. The Act also failed to close the so-called “Medicaid gap,” continuing to leave 2.2 million people without access to affordable health coverage because their states refuse federal funding to expand Medicaid. This lack of coverage forces folks to pay high costs for health care or go without care they need. These policies reflect important unfinished business for our federal policymakers that should not be forgotten.
The Inflation Reduction Act includes provisions so that seniors, workers, and families can meet their health care and basic needs, takes important steps to address the climate crisis, and raises revenues from those with the greatest resources to invest in critical public services. This bill makes real progress in advancing equity and creating a more sustainable planet where every person can thrive.
