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The Inflation Reduction Act, which just passed Congress, is 700 hundred pages long, complex, and covers everything from climate change and health care, to corporate tax policy. Yet despite touching on so many areas, which one would think increased the chances of some bipartisan support, nary one Republican voted for it.
Which begs the question: why? Well, if we are to believe Republican Sen. Lindsey Graham of South Carolina, the legislation "will make everything worse." That's a significant amount of ruination for one piece of legislation to wreak, so let's review its major elements to see if Graham's grandiose critique has any merit.
Start with health care. Among other things, the IRA cuts out-of-pocket drug expenses for Medicare beneficiaries. For instance, it caps insulin costs for folks battling diabetes at $35 per month. That's not insignificant, given the Kaiser Foundation estimates insulin currently costs an average of anywhere from $334 to $1,000 per month.
The Act also caps all prescription drug costs for Medicare Part D beneficiaries at $2,000 per year. That's well below the soft cap of $7,000 annually that applies under existing law. Oh, and for the first time ever, Medicare will be allowed to negotiate prescription drug prices with the pharmaceutical industry. Estimates are this will ultimately save Medicare -- and hence taxpayers --$265 billion.
That's a lot to unpack -- but how exactly do those changes make things worse?
Let's move on to climate change. Through a series of public investments in promoting the use of clean energy and electric vehicles estimated to cost $369 billion over the coming decade, the Office of Management and Budget projects that by 2030, the IRA will reduce America's carbon emissions by 40% from 2005 levels. Many of these incentives are market-based, and create economic incentives through rebates and tax credits designed to encourage consumers and businesses alike to utilize clean energy sources. These incentives also will create a significant number of "green" jobs over time.
Using tax and market-based incentives is a standard part of the Republican playbook, except apparently when it comes to protecting the environment. All told, the Biden Administration estimates the IRA will end up saving the typical family around $500 annually in energy costs. It will also lessen our nation's dependence on foreign oil.
Again, lots of moving parts, but it really is hard to see how mitigating climate change and creating 21st Century jobs makes anything worse. It will clearly make things decidedly better for those people who find it necessary to breathe.
Then there's the corporate tax increases contained in the IRA that both pay for the aforesaid public investments, and help reduce the deficit by anywhere from $102 to $300 billion over the next 10 years. Under the Act, large corporations reporting annual book profits in excess of $1 billion for three consecutive years will be required to pay an alternative minimum tax on those profits of 15%. This would mean really profitable megacompanies, like Nike and Archers Daniels Midland, that paid zero federal income taxes in 2020, would finally contribute to federal coffers.
Yes, the Act does provide more funding to the Internal Revenue Service to go after tax cheats -- but both the Biden Administration and the IRS have confirmed that the focus of any enhanced auditing will be folks earning north of $400,000 annually. Which makes sense, given current estimates are the wealthiest 1% annually dodge paying an average of $160 billion they owe to Uncle Sam in taxes.
One thing the IRA does not do much of -- at least initially -- is reduce inflation. The elements of the legislation that will work to tamp down prices are long-term and focus on persistent inflationary pressures rather than the more immediate transitory inflation the economy is experiencing now.
Some experts question even the long-term anti-inflationary efficacy of the Act, while others, like Moody's Analytics, are more optimistic. Be that as it may, it's more than a stretch to claim the IRA makes everything worse. This legislation does so much good it should have enjoyed at least some bipartisan support.