Now that Senator Joe Manchin has signaled his support, the Inflation Relief Act of 2022 is once again moving through Congress. More than a short-term response to inflation, however, this bill has the potential to become the boldest move the US has ever made against climate change, and it will bring real benefits to Minnesotans. Assuming, of course, that it survives a vote and procedural challenges in both chambers with little or no support from Republicans.
The title itself, the Inflation Reduction Act, is really a bit of political theater; The bill is a truly 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 at more than $300 billion over the next decade .
On the climate/energy side, credits for clean energy production have been expanded, including biofuels, subsidies for electric vehicles, rebates for home energy improvements, and support for US-made green energy technologies such as solar panels and batteries. A new “incentive program” will be created to levy taxes on methane emissions from oil and gas production, which are a major contributor to climate change pollution.
On the health care side, there is a big investment in the Affordable Care Act to lower the cost of health insurance for those who buy into the marketplace. A provision allowing 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 seniors’ out-of-pocket drug costs at $2,000 a year.
All of this will be paid for through tax reforms targeting corporations, tax evaders and loopholes. It is estimated that $440 billion in back taxes go unpaid each year, the majority of which are owned by wealthy Americans. The bill would increase appropriations for the IRS to strengthen enforcement; the nonpartisan Congressional Budget Office has calculated a 250 percent return on every dollar invested in increased law enforcement. A minimum tax of 15% on corporations with profits over $1 billion would generate over $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 lower-taxed capital gains. Supporters of the bill argue that those earning less than $400,000 a year would not see an increase in direct taxes.
So what does this have to do with inflation?
As for short-term interest rates or prices, not so much. This is long-term legislation: data on investment and savings cover a period of ten years. According to a recent Forbes article, if passed, the climate and energy bill’s provisions would “cut emissions by 37%-41% by 2030 compared to 2003 levels” and “stimulate an economic boom, boosting GDP by almost 1% in 2030′. The same analysis concluded that the bill would bring an estimated 1.5 million new jobs in the manufacturing, construction and service sectors. Addressing climate change may not pay off in the short term, but it will certainly help us avoid skyrocketing costs in the future as we deal with the impacts of climate change on everything from weather to supply chains to agriculture.
But energy and healthcare costs also make up a significant portion of monthly household budgets. Shifting to climate-friendly local green energy and reducing the cost of insurance and prescription drugs will undoubtedly have a direct impact on American families. Subsidies for home energy improvements — insulation, better windows, more efficient HVAC — 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 can be.
Headlines proclaiming the “biggest climate move ever” have been a long time coming. It’s possible that the Inflation Reduction Act could really be that and more — a move to make the tax system fairer and more equitable, improve access to health care, and lower prescription drug costs.
The account just needs a better name. Something like “Protecting the future of our grandchildren and the health of the elderly while making tax evaders pay their fair share” would do the trick.
— That’s the opinion of Times Writers Group member Derek Larson. He teaches history and environmental studies at the College of St. Benedict and the University of St. John and his column appears every month. He welcomes your comments at [email protected]