Senate Democrats passed the climate, health care and tax bill on Sunday. If it becomes law, it could reduce energy and health care costs for the average American in time time when budget is tight.
Called The Inflation Reduction Act of 2022, or IRA, this package puts hundreds of billions of dollars in order to expand access to health care, reduce prescription drug costs, and lessen the impact of climate change. To finance that, it raises taxes on large, profitable companies and aims to better enforce tax collection efforts on the rich. Democrats say it follows President Joe Biden’s oath not to raise taxes on households earning less than $400,000 a year or on small businesses.
All Republicans in the Senate voted against the bill, saying it would eliminate jobs and raise prices further. Economists say the bill will likely lower the price of inflation, though it may do so only moderately. They also say that there is a chance that consumers will not feel the effects immediately; not a long-term investment bill.
The IRA is a backtracked version of Build Back Better, Biden’s original domestic policy agenda that has been held by Republicans and moderate Democratic Senator Joe Manchin of West Virginia. While the IRA includes funding for climate change initiatives and expands health insurance, some of Biden’s stated policy priorities have disappeared — including expanding child care, universalization preschool access and paid leave — to make Manchin feel better.
House Democrats still need to pass their version of the bill, so the details could change in the coming days and weeks. But here’s what you need to know about how it can affect your wallet so far.
Negotiate prescription drug prices
The current version of the IRA allows Medicare to negotiate some prescription drug prices for seniors. To Top 10 most expensive drugs will be negotiated in 2026, expanded to 20 units by 2029.
It also limits Medicare Part D patients’ out-of-pocket drug purchases to $2,000 per year starting in 2025 and optional included to break down payments into monthly installments.
The bill would also limit insulin costs to $35 per month for Americans with private insurance, but Senate Republicans and senators have blocked that measure. That limit currently only applies to people with Medicare Part D. In addition, the bill extends cost-sharing support for low-income people and people with disabilities with Medicare.
Health benefits under the Affordable Care Act
Federal subsidies for some of the soon-to-be-expiring Affordable Care Act (ACA) health plans will be extended through 2025 under the IRA.
These subsidies help an estimated 13 million people afford their health insurance, average recipient savings hundreds of dollars a month.
Clean energy subsidies
Although some of Biden’s early environmental agendas were shelved to include Manchin, the IRA also includes a $4,000 tax credit for those earning up to $75,000 (or $150,000 collectively) to buy a used electric vehicle, and up to $7,500 for those earning up to $150,000 (or $300,000 collectively) to buy some new electric vehicles manufactured in North America.
Credits will be issued at the point of sale, meaning consumers won’t have to wait until tax is paid to receive them. It also removes the limit on how much electric vehicle manufacturers can sell before the credit is no longer applied, meaning more people will be able to qualify.
The IRA also extends the Energy Efficient Home Improvement credit, or 25C, which allows households to deduct up to 30% of the cost of qualifying green upgrades to their home from their tax bill, up to a maximum of 30%. The maximum is $1,200 per year for the next 10 years (one exception: taxpayers can deduct up to $2,000 for a heat pump water pump). Currently, there is a lifetime limit of $500 on that credit.
In addition, it implements home energy discounts for low-income households. That includes value discounts of up to $8,000 for eligible households to install heat pumps that can both heat and cool the home, $1,750 for heat pump water heaters, and up to 840 dollars for electric stoves, among others.
Those taxpayers will not only save on installation costs, but also in the long run on their energy bills, write team in Rewind America, an electrification nonprofit that promotes energy efficiency. And homes that become more energy efficient will also Reduce carbon emissions.
The bill also includes tax credits for manufacturers of solar panels and wind turbines and funds to build plants to produce clean energy technology, among other environmentally related provisions. .
Rhodium Group, a research organization, estimate that the bill’s provisions would save households between $730 and $1,135 a year by 2030 in energy costs.
As the bill’s name suggests, economists say the bill will help reign in inflation, albeit to some extent. still debating.
More than 120 economists sent a letter Congress noted that because the bill is fully paid — more on that below — it puts “downward pressure on inflation,” which has been rising at a high rate for decades.
Economists, including Nobel laureates, write: “This historic act makes significant investments in energy, health care and strengthens the nation’s tax system. “These investments will fight inflation and reduce costs for American families while setting the stage for strong, stable, and broadly shared long-term economic growth.”
They note that the IRA will also “reduce health care costs for families rapidly and dramatically,” which will help ease their financial burden and also ease inflation.
How is it paid?
IRA — worth about $433 billion—raised an estimated $739 billiona third of that comes from lower prescription drug costs.
It is also paid in one 15% minimum tax for some companies with annual profits of over $1 billion starting in 2023, as well as a 1% tax on share buyback and expanding IRS tax collection efforts to reducing the gap is called the “tax gap”, or how much tax is owed and how much is actually collected.
Responsible Federal Budget Committee estimate that the IRA would reduce the federal deficit by $1.9 trillion over two decades.
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