The U.S. Senate on Aug. 7, 2022, passed the Inflation Reduction Act of 2022 (IRA). This comprehensive legislation is the result of many months of negotiations among Democrats to advance some of President Joe Biden's highest policy priorities. The IRA will reduce the deficit and makes major investments in healthcare, domestic energy production and manufacturing, and climate change.
After decades of failed attempts, the IRA includes a first-time provision that would allow the U.S. Department of Health and Human Services to negotiate prices of certain prescription drugs in Medicare and Medicaid. In addition, savings would be generated by requiring drug manufacturers to pay a rebate for drugs whose prices increase faster than inflation under Medicare, and would create several reforms in the Medicare drug program, also known as Part D, including a cap on out-of-pocket drug spending for seniors beginning in 2025. It also extends by three years the expanded and enhanced Affordable Care Act tax credit ahead of planned premium increases set to take effect in 2023.
With regard to energy and climate change, the IRA provides unprecedented amounts of funding – nearly $369 billion in direct investment to ensure energy security, reduce carbon emissions, increase energy innovation and support environmental justice objectives with direct support for underserved communities. It will allow for the deployment of low carbon energy technologies while ensuring the president's objective to create good-paying jobs and on-shoring domestic manufacturing are met – all while reducing emissions by approximately 40 percent by 2030. For the first time, this legislation not only creates a 10-year runway for many energy tax incentives, it also fundamentally revises the tax code to create a technology-neutral approach to incentivize the deployment of low carbon technologies. Finally, there are a number of provisions included to support conventional energy development in the United States.
The IRA raises revenue with a few, but significant, changes to the tax code. This includes an alternative minimum tax on corporations, an excise tax on stock-buy backs, reinstating the Superfund tax on petroleum and oil, and increasing funding to the Internal Revenue Service. Unlike previous iterations of the bill, the IRA does not contain sweeping tax provisions aimed at increasing taxes on individuals.
The U.S. House of Representatives is expected to quickly pass the IRA and send it to President Biden for his signature. Federal agencies must then move quickly to implement the law, a process which will require significant resources. The federal agencies have significant authority and will be responsible for the success of the IRA; implementation will include the promulgation of many new rules and decisions on how to deploy funding.
Holland & Knight's Public Policy & Regulation Group, along with other attorneys in relevant practices, stand ready to assist clients in understanding this new law, and with navigating and engaging the agencies through implementation.
The following provides an in-depth summary of the IRA, including:
Tax Revenue Raisers
- Corporate Alternative Minimum Tax
- Excise Tax on Stock Buy Backs
- Changes to Net Operating Loss Limitations for Individuals
- Internal Revenue Service Enforcement Funding
- Prescription Drug Pricing Reform
- Caps on Insulin Costs for Medicare Part D
- Affordable Care Act Subsidy Extension
Energy and Climate Tax Incentives
- Energy Generation
- Energy Manufacturing
- Carbon Sequestration
- Clean Fuels
- Clean Vehicles
- Energy Efficiency
Climate, Energy and Environment Investments
- U.S. Department of Agriculture
- U.S. Environmental Protection Agency
- U.S. Department of Energy
- U.S. Department of Interior
- U.S. Department of Transportation
- General Services Administration
- U.S. Department of Commerce
- U.S. Postal Service
- U.S. Department of Housing and Urban Development
- U.S. Department of Homeland Security
- U.S. Department of Defense
- Federal Permitting Improvement Steering Council
- Federal Energy Regulatory Commission
- White House Council on Environmental Quality
- Government Accountability Office
- Office of Management and Budget