President Joe Biden signed a sweeping climate, tax and health care package into law on Tuesday — and it could have an impact on your wallet.
Dubbed the Inflation Reduction Act, the package is aimed at raising tax revenue from billion-dollar businesses and high-income earners, combating climate change and reducing the federal deficit (the difference between how much money the government spends versus how much it raises). It also, crucially, includes several measures that could help Americans save money.
“The American people are going to see lower prescription drug prices, lower health care costs and lower energy costs,” Biden said in a speech Friday after Congress passed the Inflation Reduction Act.
While the act includes many provisions from Biden’s Build Back Better agenda, it does not include major social-spending initiatives like expanded child tax credits, universal preschool, free community college or more affordable housing. It’s also unlikely to actually lower inflation: According to an analysis from economists at the University of Pennsylvania, the impact on inflation will be “statistically indistinguishable from zero.”
While the overall inflation rate — which is currently 8.5% and has remained above 8% since March — is unlikely to change much, here’s a closer look at where the Inflation Reduction Act can help reduce costs for everyday folks.
1. Subsidized health insurance
The act subsidizes premiums for people who receive health care coverage under the Affordable Care Act (aka Obamacare) and fall within 400% of the federal poverty line. This subsidy is already in place via pandemic-era policy but was slated to expire at the end of the year.
The law extends the subsidies to 2025 and is expected to cost the government about $64 billion.
“13 million Americans will continue to save an average of $800 per year on health insurance premiums,” according to a White House estimate released Monday.
2. Cheaper prescription drugs
The Inflation Reduction Act makes some big changes to Medicare, the federal health insurance program that covers more than 60 million Americans, primarily folks 65 and older.
Chief among those changes: Out-of-pocket drug
costs for some 50 million Medicare Part D beneficiaries will be capped at
$2,000 per year. This brand-new provision won’t kick in until 2025. Once in
effect, those with Medicare coverage will also be able to break down
out-of-pocket drug costs into monthly payments, which Biden has highlighted as
“a godsend for many families.”
A new cap on insulin costs is taking effect even sooner. Starting in 2023, out-of-pocket insulin costs are capped at $35 per month for Medicare beneficiaries — a move the White House expects to benefit 3.3 million Americans.
Broader changes are coming for the pharmaceutical industry, as well. A key provision of the Inflation Reduction Act will allow Medicare to negotiate prescription drug prices directly with drug makers, a provision long sought after by many Democrats and advocates who want to rein in drug prices.
Under the new law, the federal government will begin identifying 100 of the most expensive Medicare drugs. Of them, it will choose 10 drugs to begin negotiations in 2023, and the new negotiated prices will go into effect in 2026. By 2028, an additional 10 drugs will be chosen and negotiated.
The act also implements an “inflation rebate” rule that penalizes drug makers for hiking the price of certain drugs higher than the rate of inflation.
3. Tax credits for electric vehicles
The act expands a tax credit of up to $7,500 for certain new electric vehicles and introduces a credit of up to $4,000 for used EVs.
Both tax credits have earnings caps. Only people who earn $150,000 or less as a single filer can qualify for the new EV tax credit. (Married couples that file jointly and earn up to $300,000 are eligible.) For the used EV credit, the income limit is lower: $75,000 for single filers and $150,000 for married couples.
In addition to the income caps, the tax credits apply only to EVs selling below a certain price. For new electric vans, trucks and SUVs, the sticker price can’t exceed $80,000. The price for new electric cars can’t exceed $55,000.
On the other hand, to be eligible for the used EV credit, the vehicle can’t cost more than $25,000, and it must be at least 2 years old.
EVs purchased in 2023 are eligible for the credits. Starting in 2024, the credits can be applied as a discount directly at the dealership.
4. Incentives for energy-efficient home upgrades
Many incentives for folks who make energy-efficient home upgrades are tucked inside the 730-page Inflation Reduction Act. According to the White House, the act provides “$14,000 in direct consumer rebates for families to buy heat pumps or other energy efficient home appliances, saving families at least $350 per year.”
Additionally, homeowners can get a tax credit of up to 30% for the costs of installing solar, wind and other renewable energy systems between 2022 and 2032. A similar 30% tax credit — up to a max of $2,000 — can help defray the expenses of certain energy-efficiency projects like upgraded windows and doors as well as natural-gas water heaters.
Other climate-related proposals are aimed at incentivizing American companies and manufacturers to transition to green energy sources and curb emissions — while increasing domestic energy production. The logic follows that these changes would reduce the U.S.’s reliance on fossil fuels and lower the cost of energy in the long run.
Cumulatively, Democrats say the climate-related provisions will curb carbon emissions by roughly 40% by 2030.
5. Lower prices on other items — maybe, eventually
Economists say it’s unlikely the Inflation Reduction Act will reduce inflation, at least anytime soon.
There’s a chance the legislation could eventually tamp down prices by about 0.1 percentage points in about five years, according to an analysis by the University of Pennsylvania’s Penn Wharton Budget Model. But even then, analysts note they have “a low level of confidence that the legislation would have any measurable impact on inflation.”
There’s also a possibility that some of the legislation’s increased funding for farmers and rural development programs could help bring down prices for crops like corn and soybeans within a year or two, according to Hoagland of the Bipartisan Policy Center.
Households across the country have been dealing with fast-rising prices — which are up about 8.5 percent from a year ago — on a range of essentials, including groceries, gas and housing. Inflation eased slightly in July but is still hovering near 40-year highs. The Federal Reserve has been rapidly raising interest rates in the hope of slowing the economy enough to bring down prices.
6. Lower energy costs
Lawmakers’ top goal was to create a new framework paving the way for more clean and sustainable energy sources. To that end, it includes $80 billion in rebates, including as much as $14,000 in money back, helping households pay for green-energy upgrades. Subsidies cover a range of improvements, including efficient heat pumps ($8,000 back per household), electric water heaters ($1,750) and electric cooktops ($840).
Homeowners can also receive a 30 percent credit for installing solar panels.
“There will be substantial tax credits to help transition to clean energy: rebates for people who buy electric vehicles, who put solar panels on their house, who make other kinds of energy efficiency-enhancing improvements to their home,” said Heidi Shierholz, president of the Economic Policy Institute, a left-leaning think tank. “It will make it easier for families to actually make these clean-energy changes.”
Families who use funding from the bill to switch to greener technology could save as much as $1,840 a year on energy costs, according to estimates from the nonprofit Rewiring America.
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