Capital Hill has been buzzing ever since President Biden signed the Inflation Reduction Act into law. Although many are celebrating it as a win for those seeking to reform social and climate policies, others fear it won’t address the economic issue it was named for. While many of the provisions look great on paper, it leaves citizens wondering how this piece of legislation will actually impact their daily lives.
What Is the Inflation Reduction Act?
President Biden signed the Inflation Reduction Act on August 16 despite pushback from members on both sides of the aisle. His administration hopes it will be a means to lower the deficit, offer relief to working families, and generate funds to deliver on his promise to reduce carbon emissions. For months, Democrats have struggled to gain any traction with his climate, social, and taxation policies, until now.
But contrary to what the name implies, many doubt it will do much to lower current inflation rates. Nevertheless, it’s an important piece of legislation that has laid to rest several debates in Congress that have been gridlocked for years.
What Provisions Does It Include?
Talking about reforms is great, but what provisions does the Inflation Reduction Act actually include? Here’s a brief rundown of the most important inclusions.
Corporate Tax Reforms
One thing that this piece of legislation has achieved is that it will close a tax loophole that corporations have used for years. And, it gives more power to the IRS to go after tax dodgers.
One of the strongest provisions is the new corporate tax. Under the Inflation Reduction Act, corporations that earn more than $1 billion are now required to pay a minimum of 15% corporate tax. And stock buybacks also come with a 1% tax rate. These measures are expected to recapture hundreds of billions of dollars in taxes and remove some of the tax burdens from the middle class.
In addition to the new taxes, it also enhances measures for tax enforcement. The IRS has been underfunded for years and has been unable to collect billions owed in back taxes. With the new bill, it is finally receiving an influx of $80 billion over the next 10 years to perform its duties. And, there will be heavy penalties for companies who fail to meet their tax requirements or pay prevailing wages.
Another important provision addresses several changes within healthcare. This legislation will expand Medicare benefits over the next few years. Recipients will now receive free vaccines and will see lower prescription costs in the future since it gives Medicare the power to negotiate prices on certain prescription drugs. Furthermore, it will place caps on out-of-pocket expenses that will take effect by 2025. For those who qualify for the Affordable Healthcare Act, it also extends these subsidies through 2025 as well.
Some of the most groundbreaking inclusions of this bill are the federal investments in energy reform and climate change mitigation. The Inflation Reduction Act will allocate more the $400 billion toward energy security and measures to protect against climate change.
Many of these come in the form of tax credits aiming to reduce emissions. It provides substantial tax breaks for businesses and individual households that are utilizing clean energy. It also includes tax credits for those using American-made equipment to generate clean sources of energy. And, it offers additional incentives for domestic sourcing and will create millions of jobs for Americans.
How Will the Inflation Reduction Act Affect Me?
While this all sounds great, it still begs the question of how it will affect the average citizen and current inflation rates. The good news is that many of us will never have to worry about these tax reforms since they target corporations. Therefore, those who make less than $400,000 annually will see no changes in their taxes.
But, what about the rest of it? The truth is that many of us will not feel the effects of this legislation for a few years. Many financial analysts and economists expect inflation to rise through 2024, so it will not offer any immediate economic relief. Furthermore, many of the healthcare reforms won’t take full effect until 2025. So, Medicare recipients will have to wait for those benefits as well.
However, there is one thing we should all consider over the next few years. With the additional tax incentives to reduce emissions, it may be the right time to take advantage of them. If you have considered turning to solar or wind power to supplement your home’s energy needs, now may be the time to act. The IRS even has a fact sheet you can refer to if you have any questions about which installations and home improvements currently quality for tax credits.
It seems like the Inflation Reduction Act is taking steps to ease financial burdens on working families. But unfortunately, many Americans will have to wait a few years before they can claim the benefits.
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Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.