What is the Inflation Reduction Act (IRA)?

The Inflation Reduction Act (IRA) is a groundbreaking piece of legislation that creates millions of new clean energy jobs, makes prescription drugs more affordable, and asks the ultra-wealthy and big corporations to pay their fair share in taxes.

Passed by Congressional Democrats and signed into law by President Biden on August 16, 2022, the bill is a $500 billion investment that delivers what our communities need to thrive. The bill includes benefits in three main areas: clean energy and climate, affordable health care, and tax fairness. 

Clean Energy & Climate

The IRA fights the climate crisis through historic investments in (a) clean energy, (b) energy efficient buildings, and (c) resilient communities. The almost $400 billion in funding is administered through a mix of tax incentives, grants, and loan guarantees meant to lower carbon emissions 40% by 2030 and designed to benefit our communities, families, and workers. 

Clean Energy Investments

The majority of the IRA’s funding is intended to transform our economy and communities by bolstering the clean energy sector and creating over six million new jobs. This funding includes $216 billion in tax credits to incentivize investment in clean energy, including in wind and solar power, electric vehicles, clean energy supply chains, and transmission infrastructure. 

In order to take full advantage of the tax credit, businesses and other eligible entities must meet substantial labor and equity standards, as well as requirements that most of the labor and materials used are from the U.S. There are additional benefits available for investments made in communities that have been disproportionately impacted by pollution. And unlike other existing tax credits, states, local governments and nonprofits can take advantage of these clean energy programs, not just corporations. 

Additionally, there are tax credits available to individuals to purchase electric vehicles, providing up to $7500 for new vehicles and up to $4000 for used vehicles. These credits are payable at the time of purchase, making electric vehicles more affordable. 

Energy Efficient Buildings

The IRA offers a combination of grants and tax credits focused on constructing new buildings and retrofitting existing ones to be energy efficient and climate resilient, while lowering energy costs for families. There are various initiatives to address the energy efficiency of residential, commercial, and public buildings, which would create 900,000 new jobs. 

These initiatives include:

• Tax credits for residential homeowners and tenants to be reimbursed up to 30% of the cost of eligible home improvement investments like energy efficient appliances, rooftop solar panels, geothermal heating, and home batteries.
• Tax credits for commercial building owners who install systems in their buildings that reduce energy usage by 25%.
• $1 billion available in loans and grants to improve the energy efficiency and climate resiliency of affordable housing.
• $250 million in grants to upgrade federal buildings into green buildings. 

Resilient Communities  

The IRA also makes a $120 billion investment in grants to ensure our communities’ health and climate resilience, while creating another half a million new jobs. These investments include: 

• Conservation programs like restoring coastal habitats and supporting forests
• Resilience programs that reduce pollution in schools and support local governments in climate change planning and response
• Environmental justice programs that ensure that as we invest in all communities, those that have been historically marginalized and disproportionately impacted by climate change are not left behind. 

Affordable Health Care

The IRA addresses the sky-rocking cost of health care, ensuring that our families and seniors pay less for their care. In addition to the savings for individuals, it’s estimated that these provisions will save the federal government $173 billion through 2031. 

Medicare Takes on Big Pharma

The majority of the IRA’s health care provisions are drug price reforms that reduce costs for millions of Medicare beneficiaries, including:

• Requiring Medicare to negotiate with pharma companies on the prices of certain high-cost drugs to use its purchasing power to bring down the cost of prescription drugs. 
• Preventing drug companies from price gouging by penalizing them for raising drug prices faster than the rate of inflation. This will result in individuals saving on the cost of 43 different prescription drugs, just in the the period between July 1 and September 30, 2023.
• Establishing a $35 copay cap on insulin.
• Capping out-of-pocket expenses for Medicare Part D prescription drugs at $2,000 annually, starting in 2025.
• Offering free vaccines, as of January 2023. 

Expanding the Affordable Care Act 

The bill will also make health insurance more affordable, so that millions more Americans will be able to get coverage. By extending Affordable Care Act subsidies through the end of 2025, not only will millions of families save money when buying insurance through the marketplace, but families who buy their insurance on their own will have their insurance premiums reduced by up to $800. 

Tax Fairness

The IRA enacts new taxes to fund all of the investments made, while ensuring that the ultra-wealthy and large corporations are paying their fair share. It increases the minimum tax on large corporations to 15% and limits the deductions that wealthy business owners were able to use to avoid paying taxes on their full income. The bill also enacts a 1% excise tax on stock buybacks to encourage corporations to invest in their workers rather than lining the pockets of shareholders. 

The IRA originally increased funding for the IRS by $80 billion over the next 10 years, bolstering the resources the agency needs for enforcement to go after wealthy tax cheats. While the recently passed debt ceiling bill did rescind $1.4 billion in funding and diverted an additional $20 billion in IRS funding to other programs over the next two years, the bill still pays for itself and the White House has stated that “[they] don’t think it’ll fundamentally change what the IRS does over the course of the next few years.” We already saw the IRS improve their customer service and step up their enforcement on the ultra-wealthy during the 2023 tax season, ensuring working families get their returns and the well-off pay what they owe.