The Inflation Reduction Act of 2022 (IRA) is a landmark United States federal law which aims to curb inflation by possibly reducing the federal government budget deficit, lowering prescription drug prices, and investing into domestic energy production while promoting clean energy. It was passed by the 117th United States Congress and signed into law by President Joe Biden on August 16, 2022.
It is a budget reconciliation bill sponsored by Senators Chuck Schumer (D-NY) and Joe Manchin (D-WV). The bill was the result of negotiations on the proposed Build Back Better Act, which was reduced and comprehensively reworked from its initial proposal after being opposed by Manchin. It was introduced as an amendment to the Build Back Better Act and the legislative text was substituted. All Democrats in the Senate and House voted for the bill while all Republicans voted against it.
According to the nonpartisan Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT), the law will raise $738billion from tax reform and prescription drug reform to lower prices, as well as authorize $891billion in total spending – including $783 billion on energy and climate change, and three years of Affordable Care Act subsidies. The law represents the largest investment into addressing climate change in United States history. It also includes a large expansion and modernization effort for the Internal Revenue Service (IRS). According to several independent analyses, the law is projected to reduce 2030 U.S. greenhouse gas emissions to 40% below 2005 levels. The projected impact of the bill on inflation is disputed.
Background
The Build Back Better Plan was a legislative framework proposed by United States President Joe Biden between 2020 and 2021. Generally viewed as ambitious in size and scope, it sought to make the largest nationwide public investments in social, infrastructural, and environmental programs since the 1930s Great Depression-fighting policies of the New Deal.
The plan was divided into three parts: one of them, the American Rescue Plan, a COVID-19 relief spending bill, was signed into law in March 2021. The other two parts were reworked into different bills over the course of extensive negotiations within and among Congressional entities. The American Jobs Plan (AJP) was a proposal to address long-neglected infrastructure needs and reduce America's contributions to climate change's destructive effects; the American Families Plan (AFP) was a proposal to fund a variety of social policy initiatives, some of which (e.g. paid family leave) had never before been enacted nationally in the U.S.
The Build Back Better Act was a bill introduced in the 117th Congress to fulfill aspects of the Build Back Better Plan. It was spun off from the American Jobs Plan, alongside the Infrastructure Investment and Jobs Act, as a $3.5trillion Democratic reconciliation package that included provisions related to climate change in the United States (centered around Senator Ron Wyden's technology-neutral, tax incentive-first approach) and social policy, lowered to approximately $2.2trillion. The bill was passed 220–213 by the House of Representatives on November 19, 2021.
In December 2021, amidst negotiations and parliamentary procedures, Senator Joe Manchin publicly pulled his support from the bill citing its cost and a too-aggressive transition to clean energy, then retracted support for his own compromise legislation. This effectively killed the bill as it needed 50 senators to pass via reconciliation, and all 50 Republican senators opposed it.
In the summer of 2022, Manchin and Senate Majority Leader Chuck Schumer engaged in negotiations over a revised reconciliation bill with about $1 trillion in revenue from tax reform, $500 billion in climate and health care spending, and $500 billion in deficit reduction. However, Manchin announced abruptly on July 14, 2022 that he wouldn't support new climate spending or tax reform due to his fear that the bill would worsen inflation. He later stated that he would be open to revisiting those elements a few months later, provided that inflation slowed meaningfully. Biden nonetheless conceded defeat on a climate bill, urging Congress to pass whatever Manchin would agree to (a slim, $280 billion health care bill that would acquire its revenue from allowing Medicare to negotiate prices and spend $40 billion on Affordable Care Act subsidies).