Insights

CWG Insight Series: What’s in the Inflation Reduction Act?

%POST_TITLE% Thumbnail

President Biden signed the Inflation Reduction Act of 2022 into law on Aug. 16. The White House says the package will address inflation in two key ways: by lowering energy and health care costs for families and by helping to bring down the deficit.

While its name claims it will tame inflation, estimates show that the bill likely won’t do much to bring down inflation. According to the Penn Wharton Budget Model (PWBM), there’s low confidence the legislation will have any impact on inflation.

Let’s ignore the name, since it’s misleading, and focus on what’s in the Act. Here are the big provisions:

  • Creation of a 15% corporate minimum tax rate: Corporations with at least $1 billion in income will have a new tax rate of 15%. Your personal taxes will not increase, but your stock values may decrease. Higher taxes on corporations mean lower net earnings which could lead to lower stock prices and lower wage growth. Additionally, corporations will pay a 1% excise tax on stock buybacks. The goal here is to get corporations to reinvest their cash for growth and innovation vs. using it to buy their shares back. This could lead to better earnings in the future.
  • Prescription drug price reform: One of the most significant provisions of the Act will allow Medicare to negotiate the price of certain prescription drugs, bringing down the price beneficiaries will pay for their medications. Medicare recipients will have a $2,000 cap on annual out-of-pocket prescription drug costs, starting in 2025. This only helps once you turn 65 and get onto Medicare.
  • IRS tax enforcement: The bill invests $80 billion in the nation’s tax agency over the next 10 years. The funding will be used to improve its customer service and tax enforcement. This could help alleviate some of the challenges with long response times or getting tax refunds processed, but it will also increase the number of audits and increase the collection of taxes that are due but go uncollected.
  • Affordable Care Act (ACA) subsidy extension: Currently, medical insurance premiums under the ACA are subsidized by the federal government to lower premiums. These subsidies, which were scheduled to expire at the end of this year, will be extended through 2025. Approximately 3 million Americans could lose their health insurance if these subsidies weren’t extended, according to the U.S. Department of Health and Human Services.
  • Energy security and climate change investments: The bill includes numerous investments in climate protection, including tax credits for households to offset energy costs, investments in clean energy production and tax credits aimed at reducing carbon emissions. The bill offers several tax credits for people switching to cleaner energy sources, including electric vehicles and rooftop solar panels. Those incentives will take effect in 2023.


Nick Kolbenschlag
Chief Executive Officer & Co-Founder