A Report on the Enactment of The Inflation Reduction Act of 2022 (IRA) by the United States
US President Joe Biden signed IRA into law on August 16. While the bill is far smaller than the $3.5 trillion originally envisioned by Democrats, it is still a long-awaited victory for Biden and Senate Majority Leader Chuck Schumer. IRA will focus on policy areas including reducing the federal deficit to fend off inflation, increasing investment in U.S. domestic energy production and manufacturing, and driving U.S. greenhouse gas emissions reductions. This article will analyze parts of the content of IRA and its likely future impact. In tackling climate change, the bill has become the largest climate investment bill in U.S. history. The focus on climate investing covers clean energy manufacturing, including solar panels, wind turbines, batteries, electric vehicles, and key minerals. The key projects are:
Tax credits to accelerate the manufacture of solar panels, wind turbines, batteries and critical minerals.
Tax credits for the construction of clean tech manufacturing facilities, including electric vehicle factories, and the production of wind turbines and solar energy manufacture plants for battery panels.
Grant programs to retrofit existing car manufacturing facilities to make clean cars.
Loan programs to build brand new clean car manufacturing plants across the country.
Tax credit programs to support emerging technologies such as air capture and hydrogen production.
In terms of regulations on corporate tax and share repurchase tax, according to the requirements of the bill, companies with revenues of more than $1 billion should be subject to a minimum tax rate of 15%. It is expected that this measure will raise $313 billion in funds, accounting for more than 40%. Meanwhile, a 1% share repurchase tax may bring in $74 billion in revenue. The repurchase tax could be one of the main drivers of slowing stock market demand, said Mark Hackett, director of investment research at investment firm Nationwide Investment Management. However, a tax on share buybacks would have a full-blown impact on the entire market, affecting both individual and institutional investors.
An assessment by independent research firm Rhodium Group estimates that by 2030, national greenhouse gas emissions will be reduced by 32-42% from 2005 levels, compared with current policies of 24-35%, while reducing households energy costs and improve energy security. In addition, Rhodium Group projects that the nuclear provisions in the bill are likely to “keep much, if not all” of the nation’s nuclear reactors that are at risk of retiring, estimated to be 22–38% of the fleet, online through the 2030s. In terms of the bill’s economic impact, the Committee for a Responsible Federal Budget projects the bill will reduce the federal deficit by $1.9 trillion over 20 years, while the Congressional Budget Office and Penn Wharton Budget Model think IRA will not have a statistically significant effect on inflation.
By Tao Cheng
