President Joe Biden signed the Inflation Reduction Act into law on Tuesday. The new law — which authorizes massive climate investments, as well as significant new health care and tax policies — represents a landmark achievement for Democrats, and marks a central piece of Biden’s policy agenda coming to fruition.
At a signing ceremony for the bill, Biden called it “one of the most significant laws in our history,” and said, “This law finally delivers on a promise that Washington’s made for decades to the American people.”
The result of more than a year of negotiations, the act is far smaller than the Build Back Better social spending and climate legislation Democrats once hoped to pass. But it still contains huge investments in clean energy tax credits, a big change to Medicare’s role in drug price negotiation, and a new minimum tax for many corporations.
The legislation comes roughly nine months after Democrats passed an infrastructure bill that authorized $550 billion of new spending on roads, bridges, communications, and clean water. Together, it and the IRA represent the most significant government spending on America’s physical infrastructure and climate investments in decades.
All told, the IRA is expected to include over $400 billion in spending and to bring in tens of billions more in revenue, resulting in substantial deficit reduction. According to economic experts who spoke with Vox, the legislation is also likely to reduce inflation slightly in the long term.
Democratic lawmakers approved the bill along party lines just months before the November midterm elections, when Democrats will be navigating the typical backlash the president’s party faces, and asking voters to keep them in power. The passage of this legislation is a much-needed accomplishment for the party, and could help them make that case.
What’s in the law
The IRA’s main provisions focus on the following three areas:
- Health care, including allowing Medicare to negotiate prescription drug prices and extending ACA subsidies for three more years through 2025. The law would also cap insulin out-of-pocket costs for Medicare beneficiaries at $35 per month, and require pharmaceutical companies to offer rebates to Medicare if they raise the price of drugs faster than the rate of inflation for beneficiaries.
- Taxes, including a new corporate minimum tax of 15 percent, funding for IRS enforcement, and a new 1 percent excise tax on stock buybacks. There are carveouts in the corporate minimum tax for certain manufacturers and private equity firms that essentially mean they’ll be able to pay less.
- Climate, including clean energy tax credits, environmental justice grants, and drought resilience funding.
Vox staff has an exhaustive look at how each will work here.
Now that Biden has signed the IRA into law, its provisions will be able to go into effect over the next decade. Some of its policies, like tax credits for electric vehicles, will be accessible in the short term, while others, like lower prices due to prescription drug negotiations, won’t be felt for a few years.
Update, August 16, 4:03 pm: This story was originally published on August 5, 2022, and has been updated to reflect new developments, most recently that President Joe Biden has signed the Inflation Reduction Act.