After Sen. Joe Manchin signaled his support, the Inflation Reduction Act of 2022 is back on track in Congress. More than a short-term response to inflation, however, this law has the potential to become the boldest step the US has ever taken on climate change and will bring real benefits to Minnesotans. Provided, of course, that it survives votes and procedural problems in both houses with little or no Republican support.
The title “Inflation Reduction Act” itself is really a bit of political theatre; The bill is truly a complex package of new spending and tax credits for energy and climate initiatives, combined with some healthcare investments funded by tax reforms and drug cost savings for a net positive return estimated at over $300 billion over the next decade .
On the climate/energy side, there are expanded credits for clean energy production, including biofuels, subsidies for electric vehicles, rebates for improving household energy supplies, and support for US-made green energy technologies like solar panels and batteries. A new “incentive scheme” would be created to levy charges on methane emissions associated with oil and gas exploration, a major contributor to climate change pollution.
On the health care side, there is a big investment in the Affordable Care Act to lower the cost of health insurance for those who shop in the market. A provision that allows the federal government — and Medicare in particular — to negotiate drug prices with manufacturers alone is expected to save $266 billion. Another would limit out-of-pocket drug costs for seniors to $2,000 a year.
All of this would be paid for by tax reforms targeting corporations, tax evaders and loopholes. It is estimated that $440 billion in taxes go unpaid each year, most of which belongs to wealthy Americans. The bill would increase resources for the IRS to encourage enforcement; The bipartisan Congressional Budget Office has estimated a 250% return on every dollar invested in increased enforcement. A minimum tax of 15% for companies with profits over $1 billion would generate over $300 billion and ensure big energy, tech and retail giants pay their fair share. The carried interest loopholes would also be closed, requiring investment managers to treat their earnings as income rather than capital gains, which would be taxed at lower rates. Supporters of the bill claim that those earning less than $400,000 a year would not see direct tax increases.
So what does this have to do with inflation?
As for short-term interest rates or prices, not so much. This is long-term legislation: the investment and savings figures are valid for a period of ten years. According to a recent Forbes article, the bill’s climate and energy provisions, if enacted, would “reduce emissions by 37% to 41% by 2030 compared to 2003 levels” and “ignite an economic boom and GDP by increase by almost 1% in 2030”. The same analysis concluded that the bill would create about 1.5 million new jobs in the manufacturing, construction and services sectors. Tackling climate change may not pay off in the short term, but it will certainly help us avoid rising costs in the future as we address the impact of climate disruption on everything from the weather to supply chains to agriculture.
But energy and health expenditure also make up a significant part of the monthly household budget. Shifting to climate-friendly domestic green energy and driving down the cost of insurance and prescription drugs would undoubtedly have a direct impact on American families. Subsidies for home energy improvements — insulation, better windows, more efficient air conditioning — would be particularly welcome here in Minnesota, where heating bills are high. And electric vehicles? Ask a friend who no longer has to fill up to get to work how nice that can be.
Headlines announcing the “biggest climate step of all time” have been a long time coming. It’s possible that the Inflation Reduction Act is actually that and more — a move to make the tax system fairer and more equitable, improve access to health care, and also reduce the cost of prescription drugs.
The bill just needs a better name. Something like the “Act to Protect Our Grandchildren’s Futures and Seniors’ Health While Tax Evaders Pay Their Fair Share” would work.
— This is the opinion of Derek Larson, a member of the Times Writers Group. He teaches history and environmental studies at the College of St. Benedict and St. John’s University and his column appears monthly. He welcomes your comments at [email protected]