Top Photo: President Biden’s Twitter account
Yesterday, President Biden signed the Inflation Reduction Act — a historic climate, energy, and healthcare accomplishment by Congressional Democrats. Although no affordable housing funds are in the bill, it will help millions of low-income renters over the next decade with healthcare and energy costs.
At a total of $485 billion, the bill is a stripped-down version of President Biden’s $1.75 trillion Build Back Better proposal.
Even with the difference in funding, the bill is still the largest federal investment in clean energy in history. The bill is also expected to reduce the federal deficit by $300 billion.
The overall goal of the Inflation Reduction Act is to reduce U.S. greenhouse gas emissions by 40% over the next 10 years.
Beyond tackling climate issues, there are other parts of the bill that will directly help low-income renters.
Reduced healthcare costs
The Inflation Reduction Act will allow Medicare to negotiate prescription drug prices for the first time. Although this will be limited to a small selection of drugs, they will be among the most commonly used. This will reduce the cost of prescriptions for millions of low-income seniors. It will also save taxpayers about $300 billion over 10 years.
The bill will also have an immediate impact on the household budgets of low-income renters. The legislation will extend increased American Care Act subsidies that were authorized during the pandemic.
The increased health insurance subsidies are scheduled to expire at the end of 2022. The Inflation Reduction Act will extend the more generous subsidies for three years. This will help millions of low-income renters get and keep affordable health coverage.
Low-income renters in the Medicare program will also benefit from new caps on the cost of prescription drugs. There will be a $2,000 annual limit on out-of-pocket drug costs. There will also be a $35 monthly cap on the cost of insulin for Medicare clients.
Direct clean energy benefits
The Inflation Reduction Act invests $369 billion promoting clean energy, reducing greenhouse gas emissions, and addressing climate change. It provides grants, loans, and tax credits that will push industries to adopt clean technologies. Many of these credits will also help consumers lower their energy bills.
The bill provides tax credits to purchase electric vehicles (EVs). It also lowers the income limit to receive the tax credits, making electric vehicles available to more people. There is a $7,500 credit for purchasing a new EV, and a $4,000 credit for buying a used EV.
There are also up to $14,000 in tax credits available to improve energy efficiency in the home. They will lower the cost of energy efficient appliances and make it cheaper for landlords to make their properties more energy efficient. Adding solar panels, converting to heat pumps, and shifting to electric water heaters will all be more affordable.
Utilities are a major living expense, especially for low-income renters on tight budgets. Savings from energy efficiency improvements will help lower housing costs over the long term. In the short term, tenant electric and heating bills will start to trend lower too.
No tax burden for low-income renters
President Biden and Congressional Democrats had pledged that the bill would not raise taxes on households earning less than $400,000.
The bill will pay for its energy and healthcare investments by increasing taxes on some large corporations and making sure wealthy households pay what they owe.
The Inflation Reduction Act will impose a 15% minimum tax on corporations earning more than $1 billion in income. Because of tax loopholes, many large corporations have dodged the 21% corporate tax rate, and paid a smaller share in taxes than the average taxpayer. The minimum tax will make sure they pay their fair share, and it will generate about $300 billion.
There will also be a 1% excise tax on corporate stock buybacks. This will raise more than $50 billion. It makes sure that when companies see large profits, they will have to contribute to clean energy when they reward shareholders.
When large corporations have substantial profits, they can do a number of things. They can raise wages for workers, they can invest in research and development to improve their products, or they can reward shareholders.
Stock buybacks are one way of returning excess cash to shareholders. One of the Republican selling points for Trump’s 2017 tax cut package was that as corporate taxes are lowered, they will pass that savings along with better conditions for workers and more new product development. Instead, most of these companies spent a lot of their tax windfall rewarding shareholders and did not invest in their workforce or business.
The bill also provides more funds for the Internal Revenue Service (IRS) to go after those who cheat the tax system. A large number of wealthy individuals and companies try to avoid paying even the taxes that they owe. By hiring thousands of more investigators, the IRS will be able to recover billions of dollars in unpaid taxes.
While none of the housing proposals of the Build Back Better Act made it into this bill, these initiatives will help low-income renters into the next decade.
Now that the Inflation Reduction Act is law, Biden has made good on his campaign promises to tackle climate change, and is making sure all Americans have access to healthcare.