Yes, the Inflation Reduction Act might actually help you
The Senate on Sunday passed the Inflation Reduction Act — a bill meant to provide key funding for clean energy investments and measures to reduce prescription drug costs, after an hours-long vote-a-rama.
The marathon session that started Saturday continued into Sunday afternoon, with senators voting on a number of amendments to the 755-page legislation, including a failed provision offered by Sen. Raphael Warnock (D-GA) that would have capped the cost of insulin products at $35 per month for those with private insurance. Still, despite the bill’s fraught journey and many compromises, there are some victories that should have a tangible effect on the average American.
On Saturday, Vice President Kamala Harris cast the tie-breaking vote to launch a full day of debate over the bill — as well as several last-minute amendments Republican senators were floating. Senator Joe Manchin (D-WV) warned his colleagues in the Democratic Caucus not to fall for Republican senators’ “fake amendments,” since no Republican planned to vote for the IRA under any circumstance.
Despite this, my R friends have made clear they’re completely unwilling to support this bill under any condition. None of their amendments would change that. For this reason, I’ll vote to protect the integrity of the IRA regardless of the substance of their fake amendments.
— Senator Joe Manchin (@Sen_JoeManchin) August 7, 2022
For most of Sunday, the Democratic Caucus seemed to be following his admonition to vote against Republican amendments — and for that matter, any amendment that could throw off the balance of the carefully-calibrated bill. This included those by Sen. Bernie Sanders (I-VT). Sanders stood alone on proposed amendments to reinstate the child tax credit and a guarantee that Medicare drug costs wouldn’t exceed what the Department of Veterans Affairs pays for the same medications, CQ Roll Call reported.
The legislation is a pared-down version of the Build Back Better Act, the Democrats’ ambitious agenda to fund health care, education, and clean energy that Manchin effectively killed back in December. Manchin announced on Fox News that he wouldn’t vote for the legislation as it stood then because of concerns about entrenched inflation. At the time, Manchin released a statement saying that the true cost of BBB would far outstrip its initial $1.5 trillion price tag and expressed concerns about the national debt.
“My Democratic colleagues in Washington are determined to dramatically reshape our society in a way that leaves our country even more vulnerable to the threats we face,” he wrote at the time. “I cannot take that risk with a staggering debt of more than $29 trillion and inflation taxes that are real and harmful to every hard-working American at the gasoline pumps, grocery stores and utility bills with no end in sight.”
Manchin’s declaration in December meant those priorities were all but dead in the water until late July of this year, when Manchin announced that he and Senate Majority Leader Chuck Schumer had reached a deal to pass a watered-down version of the reconciliation bill — the IRA. Manchin reportedly agreed in exchange for Schumer’s promise that Congress will try to speed up the permitting process for projects under the Clean Water Act, which could allow developers to build pipelines more easily, Bloomberg Law reported.
Now, the bill goes to the House for a final vote.
What does this really mean for inflation?
There are many different measures tied up in this bill as a way to get some of the Biden Administration’s priority legislation passed. However, it is called the Inflation Reduction Act, so how will it affect the decades-high inflation numbers that consumers are feeling at the grocery store and the gas pump?
As economists told Vox’s Li Zhou this past week, the average American likely won’t feel the impact immediately or particularly significantly — its effect will be in a longer-term and macroeconomic sense.
“For the most part, this isn’t a bill about 2022,” Marc Goldwein, the senior policy director at the Committee for a Responsible Federal Budget, told Vox. “This is about 2023, 2024, 2025. It’s about helping the Federal Reserve to fight against persistent inflation. It’s not gonna be bringing down the inflation rate in the month of September.”
Shai Akabas, the director of economic policy at the Bipartisan Policy Center, explained that “there’s very little that policymakers can do, certainly on a legislative basis, to impact inflation overnight. That is primarily the job of the Federal Reserve.” The Fed has increased interest rates, which essentially raises the cost of borrowing money to slow spending, but any decision the central bank makes about fiscal policy will also take time to affect the system overall. And as Vox’s Emily Stewart explained, that’s likely to be painful for consumers in the short-term — the cost of mortgages and credit card debt will go up, hiring will probably slow, and there’s also the looming possibility of a recession. This is, however, all in hopes of setting up a more stable economy in the future.
There are some measures in the bill to ease the burden of inflation when it comes to fuel and energy costs. Fuel prices were already high due to global inflation when Russia invaded Ukraine in February, and subsequent sanctions on Russian fuel compounded those price increases, Although the price of a gallon of gas has eased due in part to federal actions like releasing oil from the Strategic Petroleum Reserve, the bill contains measures to open up avenues for drilling and fast-tracking pipeline construction to increase the available supply — thereby lowering costs for the average consumer.
Additionally, the bill will allow Medicare to negotiate for cheaper prescription drug prices for certain very expensive medications and cap out-of-pocket prescription costs for Medicare beneficiaries at $2,000 per year. That unprecedented measure will lower the cost for consumers. A further measure requires pharmaceutical companies to pay a rebate to Medicare if they raise drug prices faster than inflation increases, NPR reported Friday — presumably disincentivizing those companies from repeated price increases.
Despite the health care breakthrough, the Senate still voted down a measure to require private insurers to cap out-of-pocket insulin costs at $35 per month.
The bill’s non-inflation measures are significant, too
The IRA may not immediately push prices down to pre-Covid levels, and it’s a far cry from the Democrats’ initial Build Back Better plans, but it represents some significant steps forward for dealing with crushing health care costs and the existential threat of climate change.
In addition to cementing Medicare’s new negotiating power, the bill also holds insurance subsidies for the Affordable Care Act through 2025, making health insurance more affordable for the millions of people who are insured through the health care marketplace. The initial subsidies were supposed to end this year, which would have meant increased premiums for the millions of people who qualified for free health insurance when Congress eliminated the income cap to qualify for federal assistance paying premiums.
The IRA also includes the largest-ever investments in climate change mitigation efforts, clean energy production, and climate justice programs, all designed to mitigate harmful effects of climate change in underserved areas.
Although climate activists have expressed frustration with the bill’s compromises on oil and gas drilling, an analysis from Schumer’s office determined the climate provisions would lower greenhouse gas emissions by 40 percent from 2005 levels by 2030. “It doesn’t get us all the way there on its own, but it keeps us in the climate fight,” Jesse Jenkins of Princeton University’s REPEAT project, which studies the impact of government policy on climate change, told NPR last month.
While much of the financial incentives for pursuing clean energy and climate change mitigation are geared toward companies, there are rebates and tax credits available for people buying clean energy sources like heat pumps and rooftop solar panels. Those measures are aimed at making clean energy more available to more people, although solar panels, for example, cost about $11,000 in 2021 for a household setup. The legislation also offers a $4,000 tax credit for low- and middle-income drivers to buy a used electric vehicle, and up to $7,500 for a new electric vehicle. Additionally, a study by the Rhodium Group estimates that the bill’s provisions will save households an average of $1,025 per year by 2030.
Some of the funding is aimed specifically at low-income and vulnerable communities. For example, the legislation sets out $1 billion in grants to improve energy efficiency in affordable housing. It also provides at least $60 billion in grants for projects like improving air quality monitoring, improving transportation, and deploying clean energy in poor and vulnerable communities, as well as enhancing climate resilience in public housing and for tribal and Native Hawaiian communities.
Even though all of these measures are in place, there is no question that the environmental actions and funding aren’t enough. The bill provides far less than what’s actually needed — a total system overhaul. It will be years before these programs will be implemented and pay off in the form of lower greenhouse gas emissions, better health outcomes for low-income communities, and improved clean energy infrastructure. However, it’s hard to deny that the IRA provides a glimmer of hope that it’s possible to start addressing some of the most pressing problems — including overwhelming health care costs and climate change.
“It took 19 hours. Or maybe 2 years. Or maybe 3 decades, depending on how you count it,” Leah Stokes, a professor of climate and energy policy at the University of California, Santa Barbara tweeted Sunday. “But the US Senate has now passed a major climate bill. It was a compromise. We need to stand with frontline communities against the fossil fuel industry. But in this moment, I’m celebrating.”
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