Eric Sheldon CPA, PC

Inflation Reduction Act of 2022 – Summary

The Inflation Reduction Act of 2022 is a proposed bill in the 117th United States Congress. Its main objectives include curbing inflation, reducing the deficit, investing in domestic energy production, Medicare’s ability to negotiate drug prices, and promoting clean energy solutions. Below is a summary of some of its initiatives.

 

Inflation Reduction

The Inflation Reduction Act is a budget-reconciliation bill that Democrats have introduced to help combat the rising cost of living. While not a cure-all for inflation, it is a fiscal signal, and not a magic pill. While the Inflation Reduction Act does not eliminate the incentives for higher spending, it does raise the political bar for free-lunch fiscal policies, and it is likely to reduce the federal budget deficit by over $305 billion by the year 2031. Meanwhile, it would also increase revenue by over $200 billion from improved tax compliance.

 

The Inflation Reduction Act includes $433 billion in new spending over the next decade. That includes $369 billion for energy security. It includes $64 billion for the extension of the Affordable Care Act’s subsidies for up to three years. The bill also contains $739 billion in new revenues. The Act also includes a new 15-percent minimum tax on corporate book income, $124 billion for IRS audits of high-income taxpayers, and the closing of the carried-interest loophole.

 

Deficit Reduction

Passed the Senate in August, the Act would be the first major piece of legislation that affects the federal budget deficit since President Obama took office, reducing the federal deficit by about $300 billion over a decade.

 

It also raises the political bar for free-lunch fiscal policies, but will it cut the deficit? That is the question many economists have been asking. A new study suggests that the Act will have little impact on gross domestic product (GDP) in 2031.

 

It will reduce the deficit by a few trillion dollars over the next decade. The biggest impact is expected from Medicare and Social Security, which are projected to run deficits of $578 billion and $2.4 trillion respectively over the next decade. While the amounts are small, they add up to a lot of money for the U.S. economy.

 

Job Creation

This landmark legislation will lower health care and energy costs for families, provide high-paying jobs in the clean energy industry, and address the climate crisis. It is estimated to create 9 million jobs over the next decade, or about one million per year. However, there are some ambiguous effects. The bill is not immediately effective, however, in reducing unemployment. It could create jobs in different sectors of the economy, which would be the biggest beneficiary.

 

Taxes and National Debt

It will also help cut the national debt and ensure that profitable corporations pay their fair share of taxes. The Inflation Reduction Act will raise $739 billion without raising taxes on people making less than $400k per year. The act will provide a third of that revenue through prescription drug savings, and the remaining amount will come from tax increases on the rich and big corporations.

 

Energy Security Boost

The Inflation Reduction Act is a comprehensive legislation that will not only fight inflation, and also makes a significant down payment on climate progress and energy security. The new legislation will push carbon pollution 40 percent below 2005 levels by 2030, bringing the U.S. closer to the goal of President Biden to reduce climate pollution by half by 2030.

 

The Act also includes a number of commonsense oil and gas reforms to address these issues. One is an elimination of outdated and below-market lease rates. It also establishes minimum bids for federal parcels and bans noncompetitive leasing. The Act also aims to increase American energy production, bolstering energy security.

 

Healthcare Impact

According to Healthcare Finance News, “Medicare will be able to negotiate drug prices for the first time for 10 high-cost drugs that have yet to be determined, starting in 2026. It also keeps drug prices in Medicare from rising faster than inflation. It also gives Medicare recipients free vaccines starting in 2023. Finally, the Senate voted to extend the American Rescue Plan’s health insurance subsidy enhancements through 2025, preventing them from expiring at the end of this year.”

 

We are keeping an eye on this developing story and will share updates as they come to light.

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About the Author

Eric Sheldon

Eric Sheldon

Eric Sheldon is a certified public accountant with more than 25 years of experience in a wide variety of industries. He's the owner/operator of Eric Sheldon CPA, PC, an accounting firm that specializes in providing tax strategy and preparation, accounting, and bookkeeping services to individuals and small business owners.

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