On Tuesday, President Joe Biden signed the Inflation Reduction Act, the Democrats’ big economic package aimed at tackling climate change, curbing drug costs and raising hundreds of billions of dollars in corporate taxes.
In a ceremony at the White House, Biden called the law – for which no Republicans voted — measure “not only for today. It’s about tomorrow.”
Here’s a guide to the key components of the growing legislation, as reported by MarketWatch journalists.
Energy and climate: The law contains a number of consumer-oriented rebates and tax credits that could directly affect Americans’ wallets.
Here, for example, is how the IRA heat pump and solar rebates and credits can lower your energy bill.
And if you are thinking about buying an electric vehicle
The measure is seen as a major effort to increase access to EVs at various income levels and their use for multiple purposes. here it is how to navigate the tight used electric vehicle market like Nissan
Leaf and Chevy
Healthcare: Medicare will have the right to negotiate the cost of some prescription drugs
with pharmaceutical companies that could dramatically reduce how much older people have to spend on drugs.
Drug company CEOs, meanwhile, have told investors that the changes will be “chilling” or “harmful” to the development of new therapies.
The IRA caps out-of-pocket drug costs for Medicare beneficiaries at $2,000 per year starting in 2025. It also imposes a $35-a-month cap on insulin purchased through Medicare — but that cap does not apply to patients with private insurance.
The law Biden signed will also be spared 13 million people who receive federal subsidies under the Affordable Care Act from higher health insurance premiums next year. These subsidies will now be extended for three years.
Taxes: There are two big corporate tax elements of the package: a 15% minimum corporate tax aimed at companies like Amazon
which pay little or no income tax and a 1% excise tax on shares
The 1% tax on share buybacks is seen as unlikely to dull the appeal of share buybacks from very large companies, while other results may be harder to see, e.g the potential ultimate drag from the new minimum corporate tax rate of 15%..
analysts said the minimum tax and buybacks would reduce S&P earnings per share overall by 1.5%, but declines could be deeper in sectors such as health care
and information technology.
The Internal Revenue Service will receive $80 billion in new funding over a decade. But some tax experts wondered how far the money would go to make a difference in the lagging and beleaguered agency.
In a late twist while the bill was being voted on in the Senate, private equity firms shied away from facing potential tax increases of tens of billions of dollars and instead withdrew with relief from the new 15% minimum corporate tax.
There are no changes to the $10,000 cap on state and local tax credits.
Inflation and deficits: Whether the law will live up to its name is subject to heated debate. In an analysis released Friday, the Penn Wharton budget model found the measure would reduce deficits by $264 billion over a decade. The same study concluded that the impact on inflation was “statistically indistinguishable from zero.”
Others, including former Treasury Secretary Larry Summers, see how the IRA does its job.
“The tendency of this bill will be to reduce inflation because over time it reduces demand by reducing budget deficits,” Summers, critical for most of the past year about his fellow Democrats’ approach to stemming inflationary pressures. told the Harvard Gazette.