Now that Senator Joe Manchin has signaled his support, the Inflation Relief Act of 2022 is back on track in Congress. More than a short-term response to inflation, however, this bill has the potential to be the boldest move the US has ever made against climate change, and it will deliver real benefits to Minnesotans. Assuming, of course, that it survives votes and procedural challenges in both chambers with little or no Republican support.
The very title “Inflation Reduction Act” 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 reform and drug cost savings for a net positive return estimated to exceed 300 billions of dollars over the next decade.
The climate/energy side expands credits for clean energy production, including biofuels, electric vehicle subsidies, rebates for home energy improvements, and support for US-made green energy technology such as solar panels and batteries. A new “incentive program” will be created to tax methane emissions associated with oil and gas production, a major contributor to climate change pollution.
On the health care side it is an important investment in the Affordable Care Act to lower the cost of health insurance for those who buy in the marketplace. A provision that allows the federal government — and Medicare in particular — to negotiate drug prices with manufacturers is expected to save $266 billion on its own. Another would cap out-of-pocket drug costs for seniors at $2,000 a year.
All of this will be paid for through tax reforms targeting corporations, tax evaders and loopholes. An estimated $440 billion in back taxes go unpaid each year, most of it owed to wealthy Americans. The bill would increase appropriations to the IRS to strengthen enforcement. the nonpartisan Congressional Budget Office has estimated a 250% return on every dollar invested in increased enforcement. A minimum tax of 15% for companies with more than $1 billion in profits would raise more than $300 billion, ensuring that big energy, technology and retail giants pay their fair share. The carried interest loophole will also be closed, requiring investment managers to treat their income as income rather than capital gains taxed at lower rates. Supporters of the bill claim that those earning under $400,000 a year would not see immediate tax increases.
So what does this have to do with inflation?
As short-term rates or prices go, not so much. This is long-term legislation: investment and savings data cover a period of ten years. According to a recent article in Forbes, if enacted, the bill’s climate and energy provisions would “cut emissions 37%-41% by 2030 compared to 2003 levels” and “spur an economic boom, boosting the GDP almost 1% in 2030”. The same analysis concluded that the bill would create about 1.5 million new jobs in the manufacturing, construction and service sectors. Tackling climate change may not pay off in the short term, but it will certainly help us avoid rising costs in the future as we deal with the effects of climate disruption on everything from weather to supply chains to agriculture.
However, energy and healthcare costs are also significant parts of the monthly household budget. Shifting to climate-friendly domestic green energy and lowering the cost of insurance and prescription drugs would undoubtedly have a direct impact on American families. Subsidies for household energy improvements — insulation, better windows, more efficient air conditioning — would be especially 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 might be.
The headlines proclaiming “the biggest climate move ever” have been a long time coming. It’s possible that the Inflation Reduction Act is indeed that and more—a move to make the tax system fairer and more equitable, improve access to health care, and lower the cost of prescription drugs, too.
The bill just needs a better name. Something like the “Protecting our grandchildren’s future and the health of our elderly while making tax evaders pay their fair share” Act would work.
— That’s 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]