Now that Sen. Joe Manchin has signaled his support, the Inflation Reduction Act of 2022 is back on track in Congress. More than a short-term response to inflation though, this bill has the potential to become the boldest move the US has ever made against climate change and will bring real benefits to Minnesotans. Assuming, of course, that it survives votes and procedural challenges in both houses with little or no support from Republicans.
The “Inflation Reduction Act” title itself is really a bit of political theater; the bill is really a complex package of new spending and tax credits for energy and climate initiatives, combined with some health care investments, funded by tax reforms and drug cost savings for a net positive return estimated to exceed $300 billion over the next decade.
On the climate/energy side are expanded credits for clean energy production including biofuels, electric vehicle subsidies, rebates for home energy improvements, and support for US-made green energy tech like solar panels and batteries. A new “incentive program” would be created to levy fees on methane emissions related to oil and gas production, a major contributor to climate change pollution.
On the health care side is a major investment in the Affordable Care Act to reduce the cost of health insurance to those purchasing in the marketplace. A provision allowing the federal government — and Medicare in particular — to negotiate drug prices with manufacturers is expected to save $266 billion on its own. Another would limit out-of-pocket drug costs to seniors to $2,000 per year.
This would all be paid for though tax reforms targeting corporations, tax evaders and loopholes. It is estimated that $440 billion in taxes due go unpaid every year, the bulk of which is owned by wealthy Americans. The bill would increase appropriations to the IRS to boost enforcement; the non-partisan Congressional Budget Office has estimated a 250% return on each dollar invested in increased enforcement. A 15% minimum tax for corporations with over $1 billion in profits would generate over $300 billion, ensuring that major energy, tech and retail giants pay their fair share. The carried interest loophole would also be closed, requiring investment managers to treat their income as income, rather than as capital gains which are taxed at lower rates. Supporters of the bill claim those earning under $400,000 per year would see no direct tax increases.
So what does this have to do with inflation?
As short-term interest rates or prices go, not that much. This is long term legislation: the investment and savings figures are for a ten-year period. According to a recent article in Forbes, if enacted the climate and energy provisions of the bill would “reduce emissions 37%-41% by 2030 compared to 2003 levels” and “spur an economic boom, boosting GDP nearly 1% in 2030.” The same analysis concluded the bill would yield roughly 1.5 million new jobs in the manufacturing, construction and service sectors. Addressing climate change may not pay off in the short term, but it will certainly help us avoid soaring costs in the future as we deal with the impacts of climate disruption on everything from weather to supply chains to agriculture.
But energy and health care expenditures do make up significant parts of monthly household budgets as well. Shifting to climate-friendly domestic green energy and reducing the costs of insurance and prescription drugs would no doubt have a direct impact on American families. Subsidies for household energy improvements — insulation, better windows, more efficient HVAC — would be particularly welcome here in Minnesota where heating costs are high. And electric vehicles? Ask any friend who no longer has to buy gas to get to work how nice that can be.
Headlines proclaiming “the biggest move ever on climate” have been a long time coming. It’s possible the Inflation Reduction Act may indeed be that and more — a move to make the tax system fairer and more equitable, to improve access to health care, and to reduce the costs of prescription drugs as well.
The bill just needs a better name. Something like the “Protecting Our Grandchildren’s Future and Seniors’ Health While Making Tax Evaders Pay Their Fair Share Act” would work.
— This is the opinion of Times Writers Group member Derek Larson. 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]