President Joe Biden on Tuesday signed into law the Inflation Reduction Act — the Democrats’ big economic package aimed at addressing climate change, capping drug costs and raising hundreds of billions of dollars through taxes on corporations.
Here’s a guide to key components of the sprawling legislation, as reported by MarketWatch journalists.
Energy and climate: The law contains a number of consumer-focused rebates and tax credits that could directly impact Americans’ wallets.
Inflation Reduction Act may have little impact on inflation
WASHINGTON (AP) — With inflation raging near its highest level in four decades, the House on Friday gave final approval to President Joe Biden's landmark Inflation Reduction Act. Its title raises a tantalizing question: Will the measure actually tame the price spikes that have inflicted hardships on American households? Economic analyses of the proposal suggest that the answer is likely no — not anytime soon, anyway. The legislation, which theEconomic analyses of the proposal suggest that the answer is likely no — not anytime soon, anyway.
Here, for example, is how the IRA’s rebates and credits for heat pumps and solar can lower your energy bill.
And if you’re thinking about buying an electric vehicle the IRA includes the first-ever credit for used EVs, as well as a $7,500 credit for new EVs.
Read more: Climate portion of IRA would keep U.S. ‘within striking distance’ of halving emissions by 2030
The measure is seen as a major effort toward increasing access to EVs across income levels and using them for multiple purposes. Here’s how to navigate the tight market for pre-owned electric vehicles like the Nissan Leaf and Chevy Volt.
Healthcare: Medicare will be allowed to negotiate the costs of some prescription drugs with pharmaceutical companies, which could dramatically reduce how much seniors have to spend on medications.
Democrats prepare to pass Inflation Reduction Act, securing big win for Biden
House Democrats are set to pass the Inflation Reduction Act on Friday, securing a huge win for the party and President Joe Biden’s agenda just months before the midterm elections in November. After more than a year of intraparty clashes and doubts about whether the spending legislation would make it through Congress, the vote on Friday is expected to be drama-free and without surprises.
Chief executives of pharmaceutical companies, meanwhile, have told investors that the changes would be “chilling” or “detrimental” to the development of new therapies.
Now read: Drug savings in new law aren’t just for seniors
The IRA caps out-of-pocket drug costs for Medicare beneficiaries at $2,000 a year, beginning in 2025. It also imposes a $35-a-month cap on insulin purchased through Medicare — but that cap doesn’t extend to patients on private insurance.
Opinion: No, Senate inflation bill isn’t stripping $300 billion from Medicare
The law Biden signed will also spare 13 million people who get federal subsidies under the Affordable Care Act from higher health-insurance premiums next year. Those subsidies will now be extended for three years.
Taxes: There are two big corporate tax elements of the package: a 15% corporate minimum tax aimed at companies like Amazon that pay little or no income taxes and a 1% excise tax on stock buybacks.
Joe Manchin wrecked Biden's economic agenda last year. He ended up saving a lot of it in the last month.
Manchin signed onto the largest climate bill that Congress ever put together after blocking the Democratic agenda for months.That quip from Rep. Alexandria Ocasio Cortez of New York in early March summed up the depth of Democratic frustration with perhaps its most stubborn member: Sen. Joe Manchin of West Virginia. As winter turned to spring, Democrats were rudderless. Their economic agenda was shattered and they hadn't truly begun sorting through the wreckage of their Build Back Better plan. Russian troops pouring into Ukraine sent gas prices soaring, compounding their political problems.
The 1% tax on share buybacks is seen as unlikely to dull the appeal of share repurchases by many large companies, while other results may be tougher to see, like the potential bottom-line drag from the new minimum 15% corporate tax rate.
Goldman Sachs analysts have said the minimum tax and buybacks would decrease S&P earnings per share by 1.5% on the whole, but the declines could be deeper in sectors such as healthcare and information technology.
The Internal Revenue Service will receive $80 billion in new funding over a decade. But some tax experts have wondered how far the money will go toward making a difference at the backlogged and beleaguered agency.
In a late twist as the bill was being voted on in the Senate, private-equity firms escaped facing tens of billions of dollars in potential tax increases and instead walked away with relief from the new 15% corporate minimum tax.
There are no changes to the $10,000 cap on state and local tax deductions.
Inflation and deficits: Whether the law will live up to its name is a subject of fierce 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 is “statistically indistinguishable from zero.”
Others, including former Treasury Secretary Larry Summers, see the IRA doing its job.
“The tendency of this bill will be to reduce inflation, because over time it reduces demand by bringing down budget deficits,” Summers, critical through much of the past year of his fellow Democrats’ approach to arresting inflationary pressures. told the Harvard Gazette.