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Breaking Down the Inflation Reduction Act

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Background

The Build Back Better Act, a legislative framework that President Joe Biden proposed, sought to make the largest nationwide investments in social, infrastructural, and environmental programs since 1930. The plan is divided into three parts; The American Rescue Plan (a Covid-19 relief plan), the American Jobs Plan (a proposal to address neglected infrastructure and reduce climate change effects), and finally, the American Families plan, which proposed social policy initiatives.

In December of 2021, Senator Joe Manchin withdrew his support as he could not reconcile with the exorbitant price tag of about $1.75 trillion. This move killed the bill, as it needed 50 senators to pass, and every sitting Republican opposed the bill. The Senate Majority leader, Chuck Schumer, and Manchin continued negotiations over the course of months, which resulted in the $737 billion Inflation Reduction Act.

The Big Provisions

Taxes

The 15% Corporate Minimum Tax Rate part of the bill means that corporations with a minimum of $1 billion in income now have a tax rate of 15%. However, taxes on individuals and households are not to be increased, and corporations that buy back stock will also face a 1% excise tax. From things such as the 15 percent Corporate Minimum Tax, IRS Tax Enforcement Funding, Closure of Carried Interest Loophole, and various things, the bill will produce a revenue of $468 billion.

Health Savings

As for health savings, the bill covers Health Savings with Prescription Drugs Price: Medicare will be allowed to negotiate prices for prescription drugs which will cost $99 billion in order to bring down the price that consumers must pay. Medicare will have a $2000 cap on annual prescription drug costs

Revenue

The bill will have a revenue of $313 billion from a 15% corporate tax, meaning that any American company with at least $1 billion in income would be required to pay a 15% minimum tax on their domestic profits. Next, the IRS Tax Enforcement Funding would generate $124 billion from collecting taxes that are owed by wealthy people and large corporations.

As for the Closure of Carried Interest Loophole, this refers to the favorable loophole by private equity, real estate, and hedge fund managers which allows them to lower the amount of tax they pay substantially. By restricting this loophole, this bill will generate an estimated $14 billion.

An additional $18 billion will be generated from the Methane and Superfund fee, which charges facilities $900 per metric ton of methane, and this charge will increase to $1,500 after two years. This is monumental, seeing how it is the first time that the federal government has directly imposed any charge, fee, or tax on greenhouse gas emissions. In total, the bill will have a revenue of $468 billion.

Affordable Care Act Extension

Medical Insurance premiums are meant to be supported by the government to lower the cost of insurance policies. These subsidizations were set to expire at the end of 2022 and will be extended until 2025. This extension will cost $64 billion and impacts 3 million Americans, seeing how they could lose their health insurance. Also, this bill includes Vaccine Coverage, Part D Re-Design, and LIS Subsidies. Part D for Medicare refers to the coverage to help cover costs for prescriptions, and LIS Subsidies refer to a plan to help people with limited resources or a lower income pay for their prescriptions.

Climate Investments

The bill also includes climate protection investment, meaning that there would be tax credits for households to offset energy costs, and numerous investments in producing clean energy.

Broken down, the Clean Electricity Tax Credits subsection will cost $161 billion, and this means that taxpayers that are using green energy such as solar, or even buying electric cars will get tax credit. This is huge, as it would lead to less emissions from cars and electricity, and would also lead to companies manufacturing and developing cleaner technologies.

As for air pollution, the bill has allocated $40 billion to reduce air pollution at ports and schools, by supporting the purchase and installations of zero-emission equipment, as well as development of port climate action plans. In addition to this, the bill monitors air quality in disadvantaged communities that are exposed to persistent air pollution. With the conservation and building efficiencies the bill continues to protect wildlife as well as being able to build without a detrimental impact on the climate. In total, the bill spends $386 billion on protecting against climate change.

A Misleading Title

According to the renowned Penn Wharton Budget Model, there is little to no confidence that there will be any real impact on inflation. For context, the Penn Wharton Budget Model is a nonaligned research-based organization that often creates economic analyses.

The Congressional Budget Office, or the CBO for short, supports this model, saying that the bill will have a “negligible effect on inflation” in 2022. In 2023, inflation will change to around 0.1 percent lower than it is now. The CBO also estimated that the bill would decrease the current deficit by over $100 billion in the next decade, knocking out around 4% of the current $2.8 trillion.



Effect

The bill does not exactly reduce inflation; instead, it takes money out of the hands of large corporations more than rich individuals who have most of their money in the form of investments. However, the effects on the climate are monumental. The bill’s investments in greener energy lowers the demand for fossil fuels, making clean energy more affordable from the numerous tax credits that are offered, as well as the investment into the future of reducing emissions.

Conclusion

The bill’s title is a bit misleading, with minimal effects on inflation. However, the other parts of the bill, with the support and incentives for clean energy, are revolutionizing the United States’ impact on the climate. With the bill boasting a 43% reduction in emissions by 2030, the effects would be monumental for the world. Even if the bill may not be perfect and should be “bigger” in scale, this is a very good bill that should be celebrated for its victories.

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By: Neel Mondkar
Title: Breaking Down The Inflation Reduction Act
Sourced From: streetfins.com/breaking-down-the-inflation-reduction-act/
Published Date: Sat, 17 Sep 2022 17:44:40 +0000

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