Supporters of the sweeping law say it will improve Americans’ finances while reducing the federal deficit by $300 billion. Critics say it will result in higher taxes, particularly for businesses, and will be ineffective at bringing down decades of inflation.
“Broadly speaking, this is a bill with many elements,” said Marc Goldwein, senior policy director of the Committee on Federal Budget Responsibility, a group that advocates lower deficits. “Most households won’t see big changes right away, but some will see real reductions in their spending on things like health care and energy.”
Here’s a look at how the Anti-Inflation Act could affect your family’s finances now and in the future.
The primary goal of the legislator was to create a new framework that paves the way for cleaner and more sustainable energy sources. To that end, it includes $80 billion in rebates, including up to $14,000 in cash rebates, to help households fund green energy upgrades. The subsidies cover a range of improvements, including efficient heat pumps ($8,000 per household), electric water heaters ($1,750) and electric cooktops ($840).
Homeowners can also get a 30 percent credit for installing solar panels.
“There will be significant tax credits to ease the transition to clean energy: rebates for people who buy electric vehicles, add solar panels to their home, or make other types of energy efficiency improvements to their home,” said Heidi Shierholz, president of the Economic Policy Institute, a left-leaning think tank. “That will make it easier for families to actually make that clean energy transition.”
The nonprofit Rewiring America estimates that families who use funding from the bill to switch to greener technology could save up to $1,840 a year in energy bills.
How the climate bill could save you money and transform your shopping
2. Tax credits for switching to electric vehicles
The new round of green energy incentives includes a much-touted $7,500 loan for people who will buy new electric vehicles starting next year.
“The direct benefits won’t be immediate, but there’s a lot here, starting with savings when buying an electric vehicle,” said William Hoagland, senior vice president of the Bipartisan Policy Center.
Crucially, the legislation also offers a $4,000 loan for people who buy used electric cars, which could be an important step in discouraging more Americans from gas-guzzling vehicles, Joe Britton, executive director of the Zero Emission Transportation Association, told ET the Washington Post.
“That’s going to be one of the really invisible catalysts,” he said. “Because once you get behind the wheel of an electric vehicle, there’s a 95 percent chance you’ll never go back. … Exposing Americans of all income levels to electrification will really have a positive impact on our ability to transition.”
Buy now or wait? What the new e-car credits mean for you.
The most immediate benefit for American families, experts say: faster tax refunds and more responsive IRS agents thanks to $80 billion in additional funding for the Internal Revenue Service over 10 years.
“People will get their calls back a lot quicker,” Hoagland said. “And for individuals who are still waiting for their 2021 or 2022 tax returns to be processed, it’s probably going to be a lot quicker too.”
The legislation also provides the framework for a program that would allow Americans to file their annual taxes directly with the IRS for free. According to Emily DiVito, a senior program manager at the Roosevelt Institute, this could save Americans 2 billion hours and $30 billion in tax fees every year.
“A direct option for free filings could transform millions of people’s experience of filing their taxes — and therefore improving their experiences of contacting their government,” DiVito wrote in a recent blog post, noting that it will help families with low incomes income would be most beneficial.
Why does the IRS need $80 billion? Just look at the cafeteria.
4. Cheaper prescription drugs for seniors
It’ll be a few years, but Medicare beneficiaries will eventually see lower costs on some prescriptions.
The new legislation allows Medicare to negotiate prices with drug companies starting with 10 prescription drugs in 2026 and 20 by 2029.
“That [cost reductions] are very fragmentary,” said Jeffrey Singer, general surgeon and senior fellow at the Cato Institute, a libertarian think tank. “They’re happening gradually, but it will make the Medicare beneficiary happier.”
More directly, drug companies will have to pay rebates from next year if they increase drug prices faster than inflation. There are also other perks for Medicare beneficiaries: deductibles will be capped at $2,000 per year beginning in 2025; and insulin costs for people with diabetes will be a maximum of $35 per month.
“Once you’re on Medicare, your premiums and drug prices will start going down — not all at once and not right away, but you’ll see those costs go up more slowly than they otherwise would,” said Goldwein of the Committee for a Responsible Federal Budget .
5. Lower prices on other items – maybe eventually
Economists think the Inflation Reduction Act is unlikely to bring inflation down, at least for the foreseeable future.
According to an analysis of the University of Pennsylvania’s Penn Wharton Budget Model, there’s a possibility that legislation could reduce prices by about 0.1 percentage point in about five years. But even then, analysts note that they have “low confidence that the legislation will have a measurable impact on inflation.”
According to Hoagland of the Bipartisan Policy Center, there’s also a possibility that some of the legislation’s increased funding for farmers and rural development programs could help bring down prices for crops like corn and soybeans within a year or two.
Households across the country are grappling with rapidly rising prices – which are up about 8.5 percent from a year earlier – on a range of basic necessities, including groceries, gas and housing. Inflation eased slightly in July but is still close to 40-year highs. The Federal Reserve was quick to raise interest rates in hopes of slowing the economy enough to bring prices down.
Allyson Chiu contributed to this report.