Throughout the past year, Americans have nervously watched gas prices climb through the threes, fours and fives per gallon, wondering if and when this “inflation balloon” will pop. As of two weeks ago, Congress eased their worries by passing the Inflation Reduction Act.
President Biden signed the Inflation Reduction Act, or IRA, bill into law, August 16. Mary Childs from NPR deemed it as a “frankenstein” of actions that is meant to heal the economy in many diverse ways.
What does the bill do?
There are three main drives of the bill: promote clean energy, shrink the federal deficit via taxes and reduce the cost of pharmaceuticals.
Beginning with the transition to a greener America, the government will allocate $350 billion into developing eco-friendly technology, providing tax credits ranging from $4,000 to $7,000 to those who buy electric vehicles and granting a total of $10 billion towards electrifying homes affordably. With the potential of this bill, the White House estimates that by 2050, climate change costs will be reduced by $1.9 trillion.
Another big motivation is shrinking the federal deficit, the difference between spending and revenue. To achieve this, the bill applies a minimum of 15% corporate tax to businesses making over $400,000 annually, “supercharge[s]” the IRS to go after tax evaders with $80 billion and deals a 1% fee on stock buybacks. American economist and former professor at Syracuse University, Douglas Holtz-Eakin, explains, “Three hundred billion over 10 years is 30 billion a year. It’s a $21 trillion economy” in regards to the pay off from the policies.
As for reducing the cost of pharmaceuticals, Congress has extensive expectations. The bill allows for Medicare to negotiate pricing of prescription drugs and extends the Affordable Care Act (Obamacare) until 2025. Given this flexibility, Medicare members gain access to additional free vaccines, along with Medicare seniors having insulin costs capped at $35 a month and overall pharmaceuticals restricted to $2,000 a year by 2025.
What are the drawbacks?
For one, Holtz-Eakin raises concerns about how investing in energy efficiency and reducing healthcare costs will put money back into consumers’ pockets which he believes will raise demand and contribute to inflation – the exact contradiction of the bill.
Further, in the opposite scenario where money is being taken from the public: increasing taxes specifically on corporations may cause them to pass on the financial burden to their employees and customers by reducing wages, giving fewer raises and hiking up retail prices.
One of the biggest concerns is the environmental damage. Although the bill heavily advocates for a more sustainable tomorrow, Tom Philpott, food and agricultural correspondent for Mother Jones magazine, writes in Wired about his worries. For context, the corn belt in the midwest is one of the most productive agricultural regions in the U.S., but one-third of it suffers from soil erosion. This loss of “good soil” is caused by repeated planting of one type of crop which leads to a lack of nutrient diversity in the soil, also known as monocropping. As its name suggests, the corn belt is a huge corn producer, and the U.S. Department of Agriculture estimates 40% of that corn is used to make ethanol.
As of April, the New York Times reports that ethanol proportions in gas fuel have increased to 15% (increased by 5% from 10%) on account of a policy’s effort to reduce gas prices. With this recent change and the IRA granting $500 million to adjust gas stations to take the 15% ethanol fuel, Philpott worries that monocropping corn will just worsen its soil erosion.
Despite its concerns, the Inflation Reduction Act is undoubtedly an aggressive strategy to combat inflation. Regardless, America’s biggest concern is whether or not it will successfully pop the COVID-laced, supply-chain-disrupted, economically-inflated balloon.