TheInflation Reduction Act (IRA), passed in August 2022 by the U.S. Congress, is a landmark piece of legislation designed to reduce inflation while addressing several crucial economic and environmental issues. This massive piece of legislation, spearheaded by the Biden administration, allocates some $430 billion to reduce the deficit, lower healthcare costs, boost clean energy production, and strengthen the fight against climate change. It is one of the most ambitious climate policy initiatives ever undertaken by the United States.
The IRA is seeking first to limit inflation, a hot topic in the post-pandemic US economy, by reducing the public deficit. Part of the funds will be raised through a minimum 15% tax on large corporations with over $1 billion in profits, while strengthening IRS (Internal Revenue Service) tax controls to combat tax evasion. According to forecasts, these measures should contribute to a deficit reduction of nearly $300 billion over 10 years, helping to alleviate inflationary pressures.
On the environmental front, the Inflation Reduction Act commits nearly $370 billion to the energy transition and the fight against global warming. It encourages investment in renewable energies, transport electrification and green technologies. It includes tax credits for solar, wind and other renewable energy production, as well as financial incentives for the purchase of electric vehicles. It also aims to reduce greenhouse gas emissions by 40% by 2030, compared with 2005 levels.
The health component of the IRA reduces prescription drug costs, particularly for seniors enrolled in the Medicare program. A flagship measure of the law authorizes Medicare to negotiate drug prices, a first in the American system. In addition, it limits seniors’ annual spending on drugs to $2,000, representing major financial relief for millions of Americans.
In short, the Inflation Reduction Act is a multi-dimensional piece of legislation that aims to contain inflation while accelerating the transition to a greener economy and bringing about significant reforms in public health. While the real impact of these measures on inflation remains debated, the IRA undeniably marks a turning point in US climate and fiscal policy.
