“I think it’s likely to have a modest downward effect on inflation, so directionally, I think it is likely to push downward on prices. But that’s unlikely to be the primary effect of the legislation, given how many specific policies there are.
Most of the impact on inflation and the broader economy from this legislation is likely to be medium-term, not felt in the immediate next few months, which is how households are thinking about inflation.”
“The policies overall aim to push American consumers and industry away from reliance on fossil fuels. The biggest share of the funding goes to tax credits and rebates for a host of renewable technologies — solar panels, wind turbines, heat pumps, energy efficiency, and electric vehicles. It includes incentives for companies to manufacture more of that technology in the United States. The law will also put funding into energy efficiency at industrial sites that can help lower the sector’s hefty carbon footprint, while dedicating some funds to forest and coastal restoration.
The IRA also breaks new ground on other problematic areas of the climate crisis. It sets the first methane fee that penalizes fossil fuel companies for excess emissions of the especially powerful climate pollutant. Another substantial part of the funding helps disadvantaged communities with monitoring and cleaning up pollution, and builds their resilience to climate impacts.
Beyond cutting climate pollution, the clean energy investments could also make a dent in inflation. According to Robbie Orvis, senior director at Energy Innovation, rising energy prices have driven roughly a third of the 9 percent rise in the overall Consumer Price Index this past year. By helping Americans become less reliant on fossil fuels, the spending helps ease the global oil crunch and cut consumer bills.”
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“The agreement also includes a 15 percent minimum tax on corporations with profits over $1 billion. Senate Democrats note that while the current corporate tax rate is 21 percent, dozens of major companies, including AT&T, Amazon, and ExxonMobil, pay much less than that. Originally, the provision was expected to raise $313 billion, though new carveouts were added to win Sen. Kyrsten Sinema’s (D-AZ) vote, which give manufacturers and private equity firms more leeway when it comes to the new minimum tax rate. Those changes are likely to reduce the revenue this measure will bring in.
There is also a 1 percent excise tax on corporations’ stock buybacks, which are currently not subject to any taxes at all. That excise tax is estimated to raise roughly $73 billion in revenue.”
“One big question is whether a bill called the Inflation Reduction Act will lower the decades-high inflation numbers that consumers are feeling at the grocery store and the gas pump.
As economists told Vox’s Li Zhou, the average American likely won’t feel the impact immediately or particularly significantly — its effect will be in a longer-term and macroeconomic sense.
“For the most part, this isn’t a bill about 2022,” Marc Goldwein, the senior policy director at the Committee for a Responsible Federal Budget, told Vox. “This is about 2023, 2024, 2025. It’s about helping the Federal Reserve to fight against persistent inflation. It’s not gonna be bringing down the inflation rate in the month of September.””
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“the bill will allow Medicare to negotiate for cheaper prescription drug prices for certain very expensive medications and cap out-of-pocket prescription costs for Medicare beneficiaries at $2,000 per year. That unprecedented measure will lower the cost for consumers. A further measure requires pharmaceutical companies to pay a rebate to Medicare if they raise drug prices faster than inflation increases, NPR reported — presumably disincentivizing those companies from repeated price increases.”
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“In addition to cementing Medicare’s new negotiating power, the bill also holds insurance subsidies for the Affordable Care Act through 2025, making health insurance more affordable for the millions of people who are insured through the health care marketplace. The initial subsidies were supposed to end this year, which would have meant increased premiums for the millions of people who qualified for free health insurance when Congress eliminated the income cap to qualify for federal assistance paying premiums.
The IRA also includes the largest-ever investments in climate change mitigation efforts, clean energy production, and climate justice programs, all designed to mitigate harmful effects of climate change in underserved areas.”
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“While much of the financial incentives for pursuing clean energy and climate change mitigation are geared toward companies, there are rebates and tax credits available for people buying clean energy sources like heat pumps and rooftop solar panels. Those measures are aimed at making clean energy more available to more people, although solar panels, for example, cost about $11,000 in 2021 for a household setup.
The legislation also offers a $4,000 tax credit for low- and middle-income drivers to buy a used electric vehicle, and up to $7,500 for a new electric vehicle. Additionally, a study by the Rhodium Group estimates that the bill’s provisions will save households an average of $1,025 per year by 2030.”
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“Even though all of these measures are in place, there is no question that the environmental actions and funding aren’t enough. The bill provides far less than what’s actually needed: a total system overhaul. It will be years before these programs will be implemented and pay off in the form of lower greenhouse gas emissions, better health outcomes for low-income communities, and improved clean energy infrastructure. However, it’s hard to deny that the IRA provides a glimmer of hope that it’s possible to start addressing some of the most pressing problems — including overwhelming health care costs and climate change.”
“Farms cover roughly 40 percent of the country, and they’ve replaced countless ecosystems with vast fields of soybeans, corn, and cattle. Agriculture also accounts for about 11 percent of US greenhouse gas emissions.”
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“The biggest chunk of money — roughly $8.5 billion — goes toward a program run by the US Department of Agriculture called the Environmental Quality Incentives Program. It pays for projects that restore the ecosystem or reduce emissions on farmland.
Farmers often use the money to buy and plant cover crops. These are plants, such as clover, radishes, or rye, that are rooted in fields that might otherwise be fallow to improve the health of the soil and prevent erosion. The idea is that the ground is always “covered” with something.
Cover crops also have a range of other superpowers, said Rob Myers, director of the Center for Regenerative Agriculture at the University of Missouri. During a drought, for example, they can lock moisture in the soil; during a flood, meanwhile, they help water more easily penetrate the ground.”
“One of the most damaging legacies of the intersection between racism and fossil fuels is how highways were built to cut through Latino and Black communities. The Federal-Aid Highway Act of 1956 alone displaced more than 1 million people, according to the Department of Transportation. People who remained near these roads, overwhelmingly communities of color, were exposed to more fine particulate matter from the tailpipes of cars and trucks.
That legacy lingers today. A mountain of research has shown how Black people nationwide are exposed to more damaging pollution from construction, power plants, roads, and industry than white people.
The Inflation Reduction Act includes a federal infusion of cash for community projects aimed at addressing some of the harmful effects of these projects. There is $3 billion marked for Neighborhood Access and Equity Grants, in addition to $1 billion already approved under the bipartisan infrastructure law last fall.
The money can be used for many things, including improving walkability, capping wells, installing noise barriers, and reducing the urban heat island effect. But one way communities could use the funding is to just remove a road, highway, or other types of damaging infrastructure. They can also reconnect communities divided by highways in other ways: “multi-use trails, regional greenways, or active transportation networks and spines.””
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“Slashing climate emissions requires doing two things at once: electrifying things like cars and stoves that typically run on fossil fuels, while also cleaning up fossil fuels in the power sector so that pollution doesn’t just come from another source. That’s the reason the US will have to shut down its last 172 coal plants within the decade to finally make good on its climate promises.
One surprising policy to help with this transition made it into the final bill, even though it needed Sen. Joe Manchin’s (D-WV) sign-off: $10 billion in direct payments to rural electric co-ops that pay for the cost of a clean energy transition. The USDA will administer direct payments for these co-ops to retire coal-fired power plants.
Many of the last coal plants standing are serving rural communities. E&E News noted that “about 32 percent of the power that supplies co-ops nationwide came from coal in 2019.” Investor-owned utilities, by contrast, generated 19 percent of their electricity from coal in 2020.
These rural co-ops, which are collectively owned and governed by the communities they serve, have moved away from coal slowly more for economic reasons than political ones. These coal plants tend to be newer, and the communities they serve may be more risk-averse to transitioning to renewables because they have to pay directly for the cost of the transition.
But before rural communities can even think about transitioning to solar and wind, first they have to shut down the coal plants. And that can be expensive because it includes paying off any debts. (A separate $5 billion Department of Energy program in the bill offers loans that lower debts and costs for privately owned utilities to transition to renewables.)”
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“The more controversial part of the bill is its funding of carbon capture for oil, coal, and industrial sites. Typically, these technologies have been used to just pump CO2 back in the ground for more drilling, rather than to do anything about the climate crisis. Still, prevailing climate science shows that some of this technology is probably needed to address the harder-to-decarbonize parts of the economy. So the federal funding for scaling new technologies could manage to go a long way over the long term.”
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“the act includes $20 billion for “climate-smart” agriculture, which could help farmers store more carbon in their soil and plants.
Part of that money, for example, will go toward an initiative called the Conservation Stewardship Program, which essentially pays farmers to make their land more environmentally friendly, such as by planting cover crops. Cover crops, planted when the ground would otherwise be fallow, are one way to increase a farm’s potential to store carbon (and can also help avoid emissions).
Another $5 billion in funding goes toward preventing wildfires and protecting old-growth forests, which are rich in carbon. This is critical because the US is expected to lose more of its natural carbon sinks over time under business-as-usual scenarios.”
“So-called “core CPI,” which filters out the more volatile categories like food and fuel prices, rose by 0.6 percent in August. In short, falling gasoline prices helped to offset broader and more pernicious inflation across the rest of the economy.”
“The latest Consumer Price Index (CPI) by the Bureau of Labor Statistics (BLS) shows that prices ticked up by 0.1 percent for urban consumers in August, for an annualized increase of 8.3 percent for the year. The marginal increase in inflation comes in spite of fuel costs falling 10.3 percent last month.
“Increases in the shelter, food, and medical care indexes were the largest of many contributors to the broad-based monthly all items increase,” said the BLS in its news release today. The latest CPI numbers show a 0.7 percent increase in shelter costs in August and 6.2 percent over the past year.
The BLS measures both cash rents paid by tenants and something called Owners’ Equivalent Rent—a measurement of how much an owner-occupied home could be rented for. The bureau doesn’t include home prices in the CPI.
Spot rents reported by listing companies are growing at an even faster rate. Apartment List reports a 7.2 percent increase in rental prices so far this year. That’s moderate compared to the 17.6 percent increase in rents the company reported in 2021. It’s still well above pre-pandemic increases from 3.4 percent and 2.3 percent in 2018 and 2019 respectively.
Rents plunged during 2020, driven by an urban exodus from high-cost coastal metros like New York City, San Francisco, Los Angeles, and Seattle. Many of those same cities are where rents are growing the fastest—alongside many of the Sun Belt metros where people fled to during the pandemic.
That suggests at least a partial reset of migration patterns during the pandemic. People are returning to the city (although not necessarily to the office).
The upshot is that the country’s housing affordability struggles aren’t going anywhere. Some analysts warn that they’re likely to get worse.”
“The bill also puts restrictions on which EVs can qualify. Starting in 2024, an EV that qualifies for the full rebate amount must source at least 40 percent of its battery’s components—including minerals such as lithium, cobalt, manganese, and graphite—from either the U.S. or a country with which the U.S. has a trade agreement. Also starting in 2024, no minerals can be sourced from a “foreign entity of concern,” such as China.
The stipulation was part of a compromise with Sen. Joe Manchin (D–W.Va.), whose support was critical to the bill’s passage. Manchin insisted that the bill take a hard line on China, telling reporters: “I don’t believe that we should be building a transportation mode on the backs of foreign supply chains. I’m not going to do it.”
But 60–80 percent of EV batteries’ mineral ingredients are controlled by China. That country currently produces 76 percent of the world’s lithium-ion batteries, while the U.S. produces only 8 percent. Despite ambitious plans to scale up, the U.S. and Europe together will likely account for only about a quarter of total global production of EV component minerals by 2030.”
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“Politico suggests that the government can simply get around these strictures by issuing waivers, much as it has done for steel tariffs. In practice, steel waivers incentivized cronyism, with Washington bureaucrats picking and choosing which companies received waivers and which did not. And if a law has problems, surely the best place to deal with that is in the text of the legislation itself, not an unstated hope that the administrative state will fix the issues when they arise.”
“many Fed watchers say some of the root causes of inflation lie outside the central bank’s control, like the U.S. labor shortage, global supply chain snags and Russia’s war on Ukraine. They’re raising concern that higher rates could crimp growth without leading to much relief on prices — a point that Sen. Elizabeth Warren (D-Mass.) has hammered away at Powell for months.”
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“Markets are expecting rates to rise nearly 2 more percentage points by the end of the year. That would bring them to a level that is more normal by historical standards — the Fed’s main borrowing rate would sit above 4 percent — but is staggeringly high compared to the near-zero rates that have mostly prevailed for more than a decade.”
“Despite the bill’s name, independent analysts have found it will have virtually no impact on inflation. In reality, it is a pared-down version of what Biden originally pitched as the “Build Back Better” plan—it leaves aside much of the original bill’s spending, but it maintains a huge corporate tax increase, huge spending on green energy initiatives, and a plan to swell the ranks of IRS agents. What was originally a roughly $4 trillion proposal that would have relied heavily on borrowing ended up being something of a rarity in Washington: a bill that will raise more revenue than it spends.
And where will it get that revenue? Quite possibly from you. Households earning as little as $50,000 annually are more likely to see a tax increase than a tax break from the legislation.
In the final hours before the House vote, the Joint Committee on Taxation (JCT) completed a breakdown of how the bill’s corporate tax increases would affect households at various income levels. The JTC, a nonpartisan number-crunching agency within Congress, found that households earning between $50,000 and $75,000 are more likely to see a tax increase than a tax decrease next year.
Higher-earning households are more likely to see tax increases, but households earning more than $1 million next year are actually far more likely than lower-earning households to get a tax break.
That fits with what The Tax Foundation, a tax policy think tank, found when it analyzed the bill. The Inflation Reduction Act will “would also reduce average after-tax incomes for taxpayers across every income quintile over the long run,” the Tax Foundation reported on Wednesday. Those tax increases will reduce long-term economic output by about 0.2 percent and could eliminate 29,000 jobs, the group found.”
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” Tax increases on corporations get passed along from the board room table to the kitchen table in a variety of ways: lower pay for workers, higher prices for consumers, and smaller investment returns for shareholders.”