The U.S. Senate's Inflation Reduction Act (H.R. 5376) was passed on Aug. 7, 2022. The senate-reconciled bill, from President Joe Biden's Build Back Better Bill, went on to be passed by congress on Aug. 12. One of the swing votes for the senate act was West Virginia Senator Joe Manchin.
The Inflation Reduction Act encompassed everything from clean energy and lower health care costs to an increased IRS force and taxed stock buy backs. Knowing what's in the act is important. What solutions did they offer to health care and clean energy? And does it really reduce inflation for Americans?
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Inflation Reduction Act Costs
The Inflation Reduction Act's overall cost is $430 billion. Three hundred and sixty-nine billion of the bill will go toward clean energy. The bill's goal is to reduce greenhouse gas emissions.
Seventy-five hundred dollars in tax credits will be given to all-electric vehicles and plug-in hybrid purchases. These will contribute to zero greenhouse gas emissions and ultimately reduce overall carbon emissions.
Tax Credits for Energy Projects
After 2023, tax credits will be allowed for qualifying zero-emission nuclear power. Tax credits will also be given for qualified wind and solar components, like energy efficient solar panels. These tax credits will help energy production companies, including electricity generation facilities, reduce greenhouse emissions even further.
Other tax credits include incentives for zero-emissions electricity generation facilities.
Corporate and Stock Taxes
The Inflation Reduction Act applies a minimum, 15 percent tax on "an average annual adjusted financial statement income of domestic corporations" for C corporations that have an average adjusted financial statement income greater than $1 billion for three taxable years.
Excise Tax on Buy-Back Stock
The domestic corporation fair market buy back of stock will be taxed at 1 percent.
Buy back stock is when a company repurchases stock to create additional value for its stockholders. This increases the stock's value. When this happens, the potential for 401 (k) plans to increase in value occurs. Ultimately it helps the middle class. It will now be taxed and possibly inhibit a buy back.
Gas Prices May Rise
An excise tax of 16.4 cents per barrel will be applied to crude oil and designated petroleum products. This will take place on Jan. 1, 2023. This will be indexed annually for inflation. The jury is out whether this tax will affect gas prices. Overall energy costs may increase.
The Inflation Reduction Act encompassed everything from clean energy and lower health care costs to an increased IRS force and taxed buy backs
Medicare Prescription Prices Lowered
Prescription prices for brand-name drugs without generic equivalents are required to be negotiated for Medicare recipients. The Inflation Reduction Act requires the Centers for Medicare and Medicaid to negotiate these prescription prices beginning in 2026.
Excise taxes and civil penalties will be levied against those drug companies that don't comply with negotiating drug prices. The goal is to lower prescription drug prices.
Cost Sharing for Medicare Eliminated
Cost sharing for Medicare, Medicaid and the Children's Health Insurance Program (CHIP) recipients for specified vaccines is eliminated.
The Medicare prescription drug benefit will help with insulin. Insulin and the products associated with it will receive a cap on cost-sharing. The new cap is $35.
Subsidies for Affordable Care Act
The Affordable Care Act will now subsidize more individuals. The current subsidies have been extended. An individual may now have income 400 percent above the poverty level to qualify for the Affordable Care Act. Additional subsidies will also lower premiums. Currently, the poverty level for an individual is $12,880.
Funding for IRS Increased
The IRS will increase staffing levels. The Inflation Reduction Act has authorized the hiring of 87,000 additional operation support agents. It has also authorized business systems modernization. Office support consists of auditors, I.T. technicians and support staff.
It will also provide additional funding to the Department of the Treasury Inspector General for Tax Administration, Treasury department offices, Tax Court and the Office of Tax Policy.
The Congressional Budget Office (CBO) projects an additional revenue of $35.3 billion by 2031.
CBO Warns of Inflation
Will the Inflation Reduction Act curb inflation? According to the Senate Committee on the Budget, the act will not decrease inflation. The estimate of the Joe Manchin and Chuck Schumer deal is anticipated to "increase deficits for years – which would do nothing for the current inflation crisis."
- Congress: H.R. 5376-Infation Reduction Act of 2022
- Forbes: What is a Stock Buy Back
- U.S. Government Committee on the Budget: CBO Confirms to Dems “Inflation Reduction Act” Won’t Reduce Inflation
- Fuel Economy: Federal Tax Credits for New All-Electric and Plug-in Hybrid Vehicles
- Office of the Assistant Secretary for Planning and Evaluation: U.S. Federal Poverty Guidelines Used to Determine Financial Eligibility for Certain Federal Programs
- Congressional Budget Office: Cost Estimate
- Heritage Foundation: Fact Checking Team Biden on Who Those 87,000 IRS Agents Would Audit