The Inflation Reduction Act of 2022 (IRA), , is a United States federal law which aimed to reduce the federal government budget deficit, lower prescription drug prices, and invest in domestic energy production while promoting renewable energy. It was passed by the 117th United States Congress and signed into law by President Joe Biden on August 16, 2022.
It is a budget reconciliation bill sponsored by senators Chuck Schumer (D-NY) and Joe Manchin (D-WV). The bill was the result of negotiations on the proposed Build Back Better Act, which was reduced and comprehensively reworked from its initial proposal after being opposed by Manchin. It was introduced as an amendment to the Build Back Better Act and the legislative text was substituted. All Democrats in the Senate and House voted for the bill while all voting Republicans voted against it. It was described as a landmark piece of legislation.
According to the nonpartisan Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT), the law will raise $738billion from tax reform and prescription drug reform to lower prices, as well as authorize $891billion in total spending – including $391 billion on energy and climate change, and $64billion on three years of Affordable Care Act subsidies. Note the original September 7 CBO estimates are $391 billion for climate action, $108 billion for health care, $281 billion from health savings, and $457 billion from tax reform, for a net total of $238 billion in deficit reduction. It represents the largest investment towards addressing greenhouse gas emissions in United States history. It also includes a large expansion of the Internal Revenue Service (IRS), including the hiring of up to 87,000 new employees to replace tens of thousands of recent departures, which led to over $1 billion being collected in past-due taxes from millionaires and other high-wealth individuals by July 2024.
The act is generally not believed to have reduced inflation in 2022 and 2023,https://www.cbo.gov/system/files/2022-08/58357-Graham.pdf "Enacting the bill would affect economic activity and inflation beyond 2023. CBO has not evaluated those effects." although some economists predict the renewable energy investments will bring down inflation in the medium-to-long term.
In 2026, the first group of 10 high-cost drugs selected by Medicare will have their negotiated prices take effect.
Background
The Build Back Better Plan was a legislative framework proposed by United States president Joe Biden between 2020 and 2021. Generally viewed as ambitious in size and scope, it sought to make the largest nationwide public investments in social, infrastructural, and environmental programs since the 1930s Great Depression-fighting policies of the New Deal.
The plan was divided into three parts: one of them, the American Rescue Plan, a COVID-19 relief spending bill, was signed into law in March 2021. The other two parts were reworked into different bills over the course of extensive negotiations within and among Congressional entities. The American Jobs Plan (AJP) was a proposal to address long-neglected infrastructure needs and reduce America's contributions to climate change's destructive effects; the American Families Plan (AFP) was a proposal to fund a variety of social policy initiatives, some of which (e.g. paid family leave) had never before been enacted nationally in the U.S.
The Build Back Better Act was a bill introduced in the 117th Congress to fulfill aspects of the Build Back Better Plan. It was spun off from the American Jobs Plan, alongside the Infrastructure Investment and Jobs Act, as a $3.5trillion Democratic reconciliation package that included provisions related to climate change in the United States (centered around Senator Ron Wyden's technology-neutral, tax incentive-first approach) and social policy, lowered to approximately $2.2trillion. The bill was passed 220–213 by the House of Representatives on November 19, 2021.
In December 2021, amidst negotiations and parliamentary procedures, Senator Joe Manchin publicly pulled his support from the bill citing its cost and a too-aggressive transition to clean energy, then retracted support for his own compromise legislation. This effectively killed the bill as it needed 50 senators to pass via reconciliation, and all 50 Republican senators opposed it.
In the summer of 2022, Manchin and Senate majority leader Chuck Schumer engaged in negotiations over a revised reconciliation bill with about $1 trillion in revenue from tax reform, $500 billion in climate and health care spending, and $500 billion in deficit reduction. However, Manchin announced abruptly on July 14, 2022 that he would not support new climate spending or tax reform due to his fear that the bill would worsen inflation. He later stated that he would be open to revisiting those elements a few months later, provided that inflation slowed meaningfully. Biden nonetheless conceded defeat on a climate bill, urging Congress to pass whatever Manchin would agree to (a slim, $280 billion health care bill that would acquire its revenue from allowing Medicare to negotiate prices and spend $40 billion on Affordable Care Act subsidies).
Unbeknownst to nearly everyone in Washington, Manchin and Schumer reengaged in secret negotiations on July 18, 2022. On July 27, hours after the Senate passed the CHIPS and Science Act, the two men released a statement announcing the $891 billion Inflation Reduction Act of 2022, which included climate spending and tax reform.
The sudden deal was widely regarded as a "shocker", as Democrats had voiced little hope for a revival of their climate and tax priorities, in addition to Manchin himself being rather pessimistic on the prospect of an expanded bill.
As the revised bill made its way through the chambers of Congress, the new reality of Biden unexpectedly having a clear path to enacting substantial portions of his domestic agenda into law led to a wide reevaluation of the success of the Biden presidency thus far and was expected to give the president and his party a boost in the 2022 midterm elections.
Legislative history
The Build Back Better Act, which passed the House on September 27, 2021, was used by the Senate as the legislative vehicle for this legislation. On August 6, 2022, Senate majority leader Chuck Schumer proposed an amendment which would replace the text of the previously passed bill with the text of the Inflation Reduction Act of 2022. This substitute amendment was later adopted.
Schumer's lead staffer, Gerry Petrella, recalled the surprise phone call came from Senator Joe Manchin's office just prior to the August recess and the breakthrough negotiations occurred on the final summer weekend.Emma Dumain. (28 July 2023). "Q&A: Former Schumer aide on IRA behind the scenes". E&E Daily website Retrieved 29 August 2023. Some of the many experts, lobbyists and organizers who worked to refine the bill's provisions included Leah C. Stokes, Adrian Deveny, Katherine Hamilton, Ari Appel, Mike Carr, Danielle Deiseroth, Ari Mathusiak, Camila Thorndike, Jamal Raad, Topher Spiro, and Yogin Kothari; the overall approach was shaped by Manchin and Senators Ron Wyden, Mark Warner and Chris Coons, while Representative Scott Peters worked to add pro-pharmaceutical industry limits to the Medicare drug pricing provisions, Bernie Sanders contributed the basis for the Solar for All program, and Senators Elizabeth Warren and Kyrsten Sinema negotiated on shaping an alternative minimum tax for corporate book income.
On August 7, 2022, following the vote-a-rama, an unlimited marathon voting session on amendments, that lasted nearly 16 hours, the Senate passed the bill (as amended) on a 51–50 vote, with all Democrats voting in favor, all Republicans voting against, and Vice President Kamala Harris breaking the tie. On August 12, 2022, the bill was passed by the House on a 220–207 vote, with all Democrats voting in favor and all Republicans voting against it. On August 16, 2022, the bill was signed into law by President Joe Biden.
Provisions Over a period of 10 years, the law was estimated to raise revenue from: Estimates from the United States Congressional Joint Committee on Taxation or Congressional Budget Office, depending on the number. Prescription drug price reform to lower prices, including Medicare negotiation of drug prices for certain drugs (starting at 10 new ones per year by 2026, increasing to more than 20 additional ones per year by 2029) and rebates from drug makers who price gouge – $281billion Imposing a selective 15% corporate minimum tax rate for companies with higher than $1billion of annual financial statement income – $222billion Increased tax enforcement – $181billion Imposing a 1% excise tax on stock buybacks – $74billion 2-year extension of the limitation on excess business losses – $53 billion
In the same time period, it would spend this revenue on: Addressing domestic energy security and climate change, including funding for drought resiliency in western states – $391billion Continuing for three more years the expansion of Affordable Care Act subsidies originally expanded under the American Rescue Plan Act of 2021 – $64billion Changes to Medicare Part D, low-income subsidies, vaccine coverage, and insulin – $44 billion Increased funding for the IRS for modernization and increased tax enforcement, including the hiring of up to 87,000 new IRS employees – $80billion
$663 billion of the law's climate action investments are embedded in the federal tax code.Up from the CBO's original projection of $270 billion. Of these, McKinsey & Company estimates that roughly half the tax savings will go to corporations. As part of the overall investment into clean energy, the law created a green bank, extended the solar investment tax credit for 10 years and invested $30 billion in nuclear power (including $700 million for high-assay low enrichment uranium (HALEU) fuel source research and development and $150 million for new Office of Nuclear Energy research) and $760 million in facilitating electric power transmission siting reform. It also invests $12 billion in electric vehicle incentives, $14 billion in home energy efficiency upgrades, $22 billion in home energy supply improvements, and $37 billion in advanced manufacturing. (The latter amount includes $5.46 billion for a DOE program for zero-emissions industrial tech demonstrations, $10 billion for the renewed 48C tax credit, and more than $5 billion to the USDOT and GSA to lower embedded emissions in procurement.) $19.5 billion goes to investments in climate-smart agriculture, more than $5 billion goes to revising remediation programs for those affected by discriminatory USDA lending practices, $5 billion goes to forest protection and urban heat island reductions, and nearly $3 billion goes to coastal habitat protection. Lastly, the act gives $1.005 billion to various agencies to increase staffing levels and kickstart permitting reform, particularly of environmental reviews.
Alternatively, the act's climate investments can be summarized as follows: $196–372 billion in energy, $67–183 billion in manufacturing, $28–48 billion in building retrofits and energy efficiency, $23–436 billion in transportation, $22–26 billion in environmental justice, land use, air pollution reduction and/or resilience, and $3–21 billion in agriculture.
However, the law also requires that for federal lands, oil and gas auctions take place before wind and solar leasing, even as it provides for the Interior Department to raise royalty rates on oil and gas projects from 12.5% to 16.7%.