In his prepared remarks, President Joe Biden called the 2022 Inflation Reduction Act (IRA) one of the most “significant laws in our history” and hyped it as a win for reducing inflation and tackling the “climate crisis.”
Likewise, Senate Democrats claim the IRA will “help fight inflation” while simultaneously lowering the cost of energy for Americans and “substantially” reducing greenhouse gas emissions.
The IRA is indeed a significant win for renewable energy—it includes $369 billion in incentives for renewable energy, allowing the “most aggressive action ever” to meet Biden’s climate goals.
However, non-partisan third-party analysts state that the bill’s impact on inflation is “negligible.”
Under certain scenarios, the IRA could make inflation worse, experts add.
On Aug. 16, Biden signed the 2022 IRA into law and touted it as the “biggest step forward on climate ever.”
“[The IRAs] going to allow us to boldly take additional steps toward meeting all of my climate goals,” Biden further stated at the signing.
Indeed, the IRA includes several significant tax credits, manufacturing incentives, and grants that Senate Democrats claim will lower energy costs for Americans.
They also claim the IRA will increase U.S. energy security by encouraging domestic production, help decarbonize the economy, support disadvantaged communities’ transition to cleaner economies, and support rural communities.
Specifically, some of the tax credits in the IRA include a $9 billion energy rebate program, which would allow Americans to purchase or retrofit their homes with energy-efficient appliances. Plus, there are ten years of consumer tax credits for Americans to outfit their homes with rooftop solar, and energy-efficient heating and water systems.
Some programs include $60 billion in incentives for onshore clean energy manufacturing in the United States and billions in grants to retool or change manufacturing and farming operations.
Pointedly, Senate Democrats claim the above manufacturing provisions are one of the ways the IRA will help fight inflation.
“These manufacturing incentives will help alleviate inflation and reduce the risk of future price shocks by bringing down the cost of clean energy and clean vehicles and relieving supply chain bottlenecks.”
Actual Impact on Inflation
On Aug. 4, the non-partisan Congressional Budget Office stated in a letter to Sen. Lindsey Graham (R-S.C.): “In calendar year 2022, enacting the [IRA] would have a negligible effect on inflation, in CBO’s assessment. In calendar year 2023, inflation would probably be between 0.1 percentage point lower and 0.1 percentage point higher under the bill than it would be under current law.”
Similarly, the Penn Wharton Budget Model at the University of Pennsylvania stated, “We estimate that the Inflation Reduction Act will produce a very small increase in inflation for the first few years, up to 0.05 percent points in 2024.” After that, inflation will decline in the late 2020s.
Penn Wharton concluded, “These point estimates, however, are not statistically different than zero, thereby indicating a very low level of confidence that the legislation will have any impact on inflation.”
On Aug. 12, the Tax Foundation, using its General Equilibrium Model, found that the IRA would “eliminate about 29,000 full-time equivalent jobs in the United States” and “may actually worsen inflation by constraining the productive capacity of the economy.”
The Tax Foundation concluded that while the IRA didn’t include many of the “major tax rate increases” in the House-passed Build Back Better Act, it would still reduce long-run GDP by approximately 0.2 percent.
On July 1, Rep. Kevin Brady (R-Texas) stated, “This ‘slimmed-down’ Build Back Better couldn’t come at a worse time.”
On July 28, Biden said that while the IRA didn’t contain all of the proposals in Build Back Better, “you will see a lot of similarities” between BBB and the IRA. “It’s not all of [BBB], but we’ve moved a long way.”
Before signing the IRA on Aug. 16, Biden rejoiced, “And now I’m going to take action that I’ve been looking forward to doing for 18 months.”
When discussing the IRA on Aug 16 and how it “Builds a Better Future for Young Americans,” Biden’s first remark asserted that the IRA “is delivering on his promise to meet the climate crisis.”
Biden added, “This law represents the single most aggressive action the U.S. is taking to tackle the climate crisis and create clean energy solutions in American history.”
Indeed, the IRA is a significant win for renewable energy causes, but according to independent experts, it won’t help fight inflation and could make it worse.