President Biden Signs The Inflation Reduction Act into Law

On August 16, President Biden signed the Inflation Reduction Act (IRA) into law. The enormous bill—clocking in at 725 pages—contains a wide range of provisions and comes with a nearly $750 billion price tag. “The bill is fighting inflation and has a whole lot of collateral benefits as well,” said former Treasury Secretary Larry Summers, who reportedly helped craft the legislation.

Read on for an overview of the key items contained in the new act.

Provisions for Funding the IRA

In order to cover the $750 billion price tag of the IRA, authors of the legislation included a variety of savings- and revenue-related provisions. Here is a breakdown of how the IRA will be funded (please note that the numbers are estimates from the Joint Committee on Taxation and the Congressional Budget Office):

Savings in the Healthcare Arena ($288 billion)
1. Repeal of a Trump-era drug rebate rule
2. An inflation cap on drug prices
3. An allowance for Medicare to negotiate certain drug prices
New Revenue
1. A new 15% corporate minimum tax for corporations with financial statement (“book”) income exceeding $1 billion ($313 billion)
2. Increased revenue as a result of IRS tax enforcement funding ($124 billion)
3. A 1% excise tax on corporate stock buybacks
4. Methane and Superfund fees

How IRA Funds Will be Spent

So how will the $750 billion raised via savings and new revenue be spent? Here is a brief overview of initiatives included in the IRA (please note that the numbers are estimates from the Joint Committee on Taxation and the Congressional Budget Office):

Climate & Energy Spending ($369 billion)
1. Creation of new clean manufacturing tax credits
2. Establishment of additional clean electricity grants and loans
3. Creation of a new “Clean Energy Technology Accelerator”
4. Incentivization of clean agriculture
5. Incentivization of clean electronic vehicle manufacturing
6. Additional energy and climate provisions
Healthcare Spending ($64 Billion)
1. A three-year extension of Obamacare subsidies for health care insurance costs
2. A redesign of Medicare Part D and additional health care provisions
IRS Funding
1. Funding for increased IRS enforcement (namely, to enhance IT systems and compensate specialized employees—for more details, read IRS Commissioner Charles Rettig’s letter on the intended use of funding and plans for enforcement)
Other Spending
1. Reducing the Federal deficit ($300+ billion)

What’s Next?

Please be assured that your FIRM accounting advisors are keeping a close watch on the progress of the IRA and how it will impact your particular situation. You can reach out to your advisor if you have any specific questions regarding the new law.

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