On August 7, the U.S. Senate voted to pass the Inflation Reduction Act (IRA). The enormous bill—clocking in at 725 pages—contains a wide range of provisions and comes with a nearly $750 billion price tag. “The bill is fighting inflation and has a whole lot of collateral benefits as well,” said former Treasury Secretary Larry Summers, who reportedly helped craft the legislation.
While there are still hurdles to summit before the bill becomes law, it is important to remain aware of what is potentially in the works. Read on for an overview of the key items contained in the new act.
Provisions for Funding the IRA
In order to cover the $750 billion price tag of the IRA, the authors of the legislation included a variety of savings- and revenue-related provisions. Here is a breakdown of how the IRA will be funded (please note that the numbers are estimates from the Joint Committee on Taxation and the Congressional Budget Office):
- Savings in the Healthcare Arena ($288 billion)
- Repeal of a Trump-era drug rebate rule
- An inflation cap on drug prices
- An allowance for Medicare to negotiate certain drug prices
- New Revenue
- A new 15% corporate minimum tax for corporations with financial statement (“book”) income exceeding $1 billion ($313 billion)
- Increased revenue as a result of IRS tax enforcement funding ($124 billion)
- A 1% excise tax on corporate stock buybacks
- Methane and Superfund fees
How IRA Funds Will be Spent
So how will the $750 billion raised via savings and new revenue be spent? Here is a brief overview of initiatives included in the IRA (please note that the numbers are estimates from the Joint Committee on Taxation and the Congressional Budget Office):
- Climate & Energy Spending ($369 billion)
- Creation of new clean manufacturing tax credits
- Establishment of additional clean electricity grants and loans
- Creation of a new “Clean Energy Technology Accelerator”
- Incentivization of clean agriculture
- Incentivization of clean electronic vehicle manufacturing
- Additional energy and climate provisions
- Healthcare Spending ($64 Billion)
- A three-year extension of Obamacare subsidies for health care insurance costs
- A redesign of Medicare Part D and additional health care provisions
- IRS Funding
- Funding for increased IRS enforcement (namely, to enhance IT systems and compensate specialized employees—for more details, read IRS Commissioner Charles Rettig’s letter on the intended use of funding and plans for enforcement)
- Other Spending
- Reducing the Federal deficit ($300+ billion)
Now that the IRA Act has been approved by the Senate, it heads to the House. The new legislation is expected to pass easily in the Democratic-controlled body. Timing is yet to be announced; however, it is likely to move relatively quickly. Upon passage in the House, the IRA will be brought to President Biden for his signature.
As with any legislation in progress, details about the IRA remain up in the air until it is enacted by the President. Please be assured that your Lohman Company, PLLC accounting advisors are keeping a close watch on the progress of the IRA and will keep you apprised of any major developments.