Testimony

The Inflation Reduction Act: A Year in Review

Trevor Higgins, senior vice president of the Energy and Environment department at the Center for American Progress, filed written testimony before the U.S. House Oversight and Accountability Committee’s Subcommittee on Health Care and Financial Services; the testimony is in support of the Inflation Reduction Act in its first year of historic investments in American households and jobs aimed at accelerating the U.S. transition to a clean energy economy.

Thank you, Chair McClain, Ranking Member Porter, and members of the subcommittee. I appreciate the opportunity to appear today to provide testimony on the Inflation Reduction Act’s historic investments in American households and jobs aimed at accelerating the U.S. transition to a clean energy economy.

Last August, Congress built on the Infrastructure Investment and Jobs Act and the CHIPS and Science Act to enact the Inflation Reduction Act, which represents the largest investment in climate action in U.S. history. This legislation is projected to cut U.S. greenhouse gas emissions to 40 percent below peak levels by 2030, putting the United States on a path toward its Paris Agreement commitment of reaching 50–52 percent below 2005 levels by 2030.1 These are critical milestones in the effort to limit global warming to 1.5 degrees Celsius this century.

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The groundbreaking legislation is already at work today, growing the economy by investing in the middle class: It connects good-paying jobs and apprenticeship programs to clean energy incentives; it builds supply chains and domestic manufacturing that will equip America to compete in the global clean energy economy for decades to come; it cleans up air pollution that is concentrated in low-income communities; and it cuts household energy costs in every region of the country. The Inflation Reduction Act is also lowering health care costs and modernizing the IRS to deliver better service and fair enforcement.

The Inflation Reduction Act connects good-paying jobs and apprenticeship programs to clean energy incentives

The Inflation Reduction Act is not only expected to create at least 1.3 million new jobs by 2030 ;2 it has already created more than 170,600 clean energy jobs across the United States.3 These aren’t just jobs of the future. These are jobs right now. Importantly, the full value of the revised clean electricity tax credits is only available for project developers who pay prevailing wages and employ people in apprenticeship programs—expanding opportunities to family-supporting employment and ensuring that the clean energy economy will be built with good jobs.4

The Inflation Reduction Act supports the build-out of secure supply chains and domestic manufacturing

The Inflation Reduction Act’s targeted investments incentivize onshoring manufacturing and building resilient supply chains in the United States. For example, the clean energy investment tax incentives depend on increasing proportions of domestic content. There are investment programs for investments in new manufacturing in energy communities (Section 13501), advanced industrial facilities (Section 50161), automotive retooling (Section 50143), and more. The Inflation Reduction Act’s advanced manufacturing tax incentives provide a long-term investment signal for critical mineral processing and battery production, and the structure of the Inflation Reduction Act’s tax credits for electric vehicles depends on domestic assembly and domestic batteries. These investments are already supercharging the U.S. economy.

The Biden administration is making investments in cities and towns across the country

Learn more about local projects happening in your community with the Biden Administration Investment Tracker.

According to the Rhodium Group, there has been $213 billion of investments to manufacture and deploy clean energy since the passage of the Inflation Reduction Act.5 New investments have supported at least 272 new clean energy projects in 44 states, as documented by Climate Power, including:6

  • 91 new battery manufacturing sites—creating nearly 93,000 new jobs—in places such as Kentucky, Missouri, Louisiana, and New York
  • 65 new or expanded electric vehicle manufacturing facilities, creating 32,000 new jobs in cities such as Savannah, Georgia; Montgomery, Alabama; and Auburn Hills, Michigan
  • 84 new wind and solar manufacturing plants in cities such as Pensacola, Florida; Cochranton, Pennsylvania; and Georgetown, Texas

These investments in U.S. industry are necessary for competing on the advanced technologies that will power the new clean energy economy, and they will provide decades of job opportunities for communities across the country. These recent investments, which are already helping the United States to compete with China, and their robust implementation will further increase U.S. competitiveness.

Inflation Reduction Act investments help clean up air pollution that is concentrated in low-income communities

Modeling from Energy Innovation shows that pollution reductions from the Inflation Reduction Act’s clean energy investments are likely to prevent up to 4,500 premature deaths and nearly 119,000 asthma attacks annually by 2030.7 This translates to $27 billion to $42 billion in avoided health damages in 2030 alone. Importantly, these pollution-related deaths will decline by an even greater percentage in low-income communities and communities of color, which are disproportionately burdened by environmental harm and pollutants.8 The Inflation Reduction Act also leverages climate, clean energy, transit, and other federal funding opportunities to advance the Justice40 Initiative, which aims to reduce legacy pollution and other disproportionate health and environmental hazards in disadvantaged communities.9 New and existing Justice40-covered programs across 24 federal agencies have made more than $91.2 billion in investments available in fiscal year 2022 to address climate change, decarbonization, energy burdens, and legacy water and air pollution in historically marginalized communities.10

  • Under the Federal Emergency Management Agency’s (FEMA) Building Resilient Infrastructure and Communities program, Jefferson Parish, Louisiana has received $19 million toward its project Entergy Grid Hardening of Power Distribution to Support Resiliency,11 which will upgrade the power infrastructure of community residents and protect them from outages arising from hurricanes and 150 mph winds.
  • Under the U.S. Department of Transportation’s Low or No Emission Vehicle Program, the Chicago Transit Authority will receive more than $28.8 million to transition to an all-electric bus fleet by 2040 and reduce more than 8,720 tons of carbon dioxide emissions within a historically disadvantaged community.12
  • Under the U.S. Department of Agriculture’s Rural Energy for America Program, Tule Hydro LLC in California received a $500,000 grant to retrofit an existing hydroelectric system that will generate more than 19 million kilowatt-hours every year and power 1,740 homes annually.13

Inflation Reduction Act investments in rural electric co-ops will lower consumer costs and increase access to clean energy

The Inflation Reduction Act makes historic investments in rural electrification, supporting our nation’s electric cooperatives to bring clean and affordable energy to rural communities.14 The Inflation Reduction Act modifies the clean energy tax credits to allow electric cooperatives, and other nonprofit entities such as public hospitals, schools, places of worship, and more, to access the same federal clean energy incentives available to privately owned utilities. This allows cooperatives to access clean energy benefits directly, rather than rely on power purchase agreements.15 The Inflation Reduction Act also created the $9.7 billion Empowering Rural America program, which will provide funding to rural electric co-ops to deploy clean energy, make energy efficiency improvements, and manage stranded assets.16

Inflation Reduction Act investments cut household energy costs in every region of the country

American households will save up to $220 per year, saving Americans $209 billion to $278 billion on their household electricity bills over the next 10 years, thanks to the Inflation Reduction Act.17 The Inflation Reduction Act offers households up to $28,500 in rebates and incentives to households that choose to install clean appliances in their homes and buy electric vehicles.18 For low-income households, these rebates can cover 100 percent of project costs, including installation costs. Because running on electricity is generally more affordable and less volatile than fossil fuels, home electrification can save the average household up to $1,800, according to Rewiring America,19 and switching to an electric vehicle can save the average driver up to $2,600 per year in fuel and maintenance costs, according to Consumer Reports.20 The Inflation Reduction Act provides up to $4,000 in tax credits for the purchase of a used electric vehicle, increasing access and affordability for lower-income households.

Even families who don’t take advantage of these programs will still save on their energy bills, as the investments in affordable clean energy and reduced fuel demand across the economy will actually lower the price of natural gas.21 These clean energy investments deliver more and more savings every year, which will be felt in every region of the country, ranging from 9 percent total energy cost savings in New England, to 12 percent in the Midwest, to up to 24 percent on the West Coast by the end of this decade.22 This includes, on average, annual household savings of $10,969 in Pennsylvania, $11,290 in Texas, $11,148 in Michigan, $10,082 in North Carolina, $11,050 in Wyoming, and $12,189 in Washington state.23

The Inflation Reduction Act is lowering health care costs

The Inflation Reduction Act took an unprecedented leap toward protecting Americans from exorbitant prescription drug prices. The Inflation Reduction Act reins in high drug prices on multiple fronts. By enabling negotiation, it lowers drug prices for seniors and other Medicare enrollees; it also prevents drug companies from raising their drug prices excessively. In total, from 2022 to 2031, the Congressional Budget Office estimates that the Inflation Reduction Act’s drug pricing provisions would decrease the federal deficit by $237 billion.24

By enabling Medicare to negotiate the prices of select prescription drugs, the Inflation Reduction Act will help Medicare beneficiaries who depend on some of the most expensive and widely used medications. On August 29, 2023, the Centers for Medicare and Medicaid Services announced the first 10 Medicare Part D drugs for which it will negotiate prices, with these lower prices to take effect in 2026.25 From June 1, 2022, to May 31, 2023, these 10 drugs represented approximately 20 percent of Medicare Part D gross covered prescription drug costs, totaling approximately $50 billion.26

The Congressional Budget Office estimated that drug price negotiation will cut net drug prices for the selected drugs in half.27 These lower drug prices will not only reduce Medicare spending; drug price negotiation will also result in lower out-of-pocket costs for Medicare enrollees.28 With Medicare enrollees spending $3.4 billion in out-of-pocket costs for the 10 selected drugs in 2022, drug price negotiation will be a lifeline for millions of seniors and disabled people.29 These benefits will compound over time. The Centers for Medicare and Medicaid Services will continue to negotiate prices for Medicare Part D and B drugs annually, with up to 80 drugs negotiated by 2030.30

The Inflation Reduction Act also cracks down on pharmaceutical companies for hiking drug prices above the rate of inflation. From July 2021 to July 2022, drug companies raised the prices of more than 1,200 drugs above the inflation rate.31 Drug companies that increase their prices faster than inflation will have to pay rebates back to Medicare, and Medicare Part B beneficiaries will pay lower coinsurance based on the lower inflation-adjusted price.

The Inflation Reduction Act further insulates people with Medicare coverage from extreme out-of-pocket costs by capping annual out-of-pocket spending for Medicare enrollees at $2,000 beginning in 2025. In 2022, Medicare beneficiaries who did not receive low-income subsidies had average annual out-of-pocket costs above the $2,000 threshold for three of the 10 drugs up for negotiation.32 Medicare enrollees are already benefiting from the Inflation Reduction Act provisions to limit monthly out-of-pocket spending on insulin to $35 per month.

The Inflation Reduction Act will also enable millions of adults to access lifesaving vaccines without cost sharing. As of this year, the Inflation Reduction Act requires Medicare Part D, as well as Medicaid and the Children’s Health Insurance Program (beginning October 1, 2023) to provide all adult vaccines recommended by the Advisory Committee on Immunization Practices to beneficiaries at no cost.

The Inflation Reduction Act also lowered costs for people who buy health insurance on their own through the Affordable Care Act marketplaces. It extended the enhanced premium tax credits enacted by the American Rescue Plan Act through 2025, saving marketplace enrollees an average of $800 annually.33 As of 2022, the enhanced premium tax credits had resulted in an average of 53 percent premium savings per consumer per month.34 The Inflation Reduction Act improved affordability for millions more Americans and contributed to record-high marketplace enrollment of 16.3 million in 2023.35

IRS modernization was long overdue

The Inflation Reduction Act made long-overdue investments in the IRS that are already being used to modernize its technology, improve customer service, and audit wealthy taxpayers. Tax enforcement is about not just collecting needed revenue, but also unrigging the economy for workers and honest taxpayers, while making sure the wealthy pay the taxes they legally owe.

Thanks to the new funding, the tax filing season was dramatically improved this year over last year—the IRS answered 3 million more calls, significantly reduced call wait times down to three minutes from 28 minutes, served 140,000 more taxpayers in person, and digitized 80 times more returns through the adoption of scanning technology.36 It also cleared the backlog of unprocessed 2022 individual tax returns with no errors and enabled a new direct-deposit refund option for taxpayers with amended returns. As part of these improvements, it made huge progress on a “paperless processing” initiative it unveiled earlier this month, in which it aims to fully digitize its operations by 2025. It opened or reopened 42 Taxpayer Assistance Centers across the country, expanding in-person service to rural and underserved taxpayers. And it introduced a pilot program for a free direct-file system.

The agency has also taken important steps toward reducing the tax gap in our country—the difference between taxes owed and those actually paid, which was projected to add up to a jaw-dropping $7 trillion over the next decade.37Recently, the IRS used artificial intelligence to identify 75 hedge funds, real estate investment funds, and other partnerships with assets of more than $10 billion for audits.38

Conclusion

The Inflation Reduction Act has already created hundreds of thousands of jobs, launched hundreds of clean energy and transportation projects across the country, and begun to onshore supply chains that China has sought to dominate. Clean energy is setting an example for the rest of the economy to increase transparency in supply chains and improve job quality. And the benefits are just beginning to take effect—we are only one year in. Many programs have just started, and incentives are newly available. Once the law is fully implemented, these benefits will only continue to grow, increasing the United States’ competitiveness in the global economy, cutting household energy costs, and saving lives.

Thank you for the opportunity to be here today. I look forward to any questions you may have.

Endnotes

  1. John Larsen and others, “A Turning Point for US Climate Progress: Assessing the Climate and Clean Energy Provisions in the Inflation Reduction Act” (New York: Rhodium Group, 2022), available at https://rhg.com/research/climate-clean-energy-inflation-reduction-act/.
  2. Megan Mahajan and others, “Updated Inflation Reduction Act Modeling Using the Energy Policy Simulator” (San Francisco: Energy Innovation, 2022), available at https://energyinnovation.org/wp-content/uploads/2022/08/Updated-Inflation-Reduction-Act-Modeling-Using-the-Energy-Policy-Simulator.pdf.
  3. Climate Power, “One Year of Our Clean Energy Boom: The 170,606 (and Counting) New Clean Energy Jobs Across the United States,” July 25, 2023, available at https://climatepower.us/wp-content/uploads/sites/23/2023/07/Clean-Energy-Boom-Anniversary-Report-1.pdf.
  4. Mike Williams, Marina Zhavoronkova, and David Madland, “The Inflation Reduction Act Provides Pathways to High-Quality Jobs” (Washington: Center for American Progress, 2022), available at https://www.americanprogress.org/article/the-inflation-reduction-act-provides-pathways-to-high-quality-jobs/.
  5. Rhodium Group and MIT Center for Energy and Environmental Policy Research, “Clean Investment Monitor,” available at https://www.cleaninvestmentmonitor.org/ (last accessed September 2023).
  6. Climate Power, “One Year of Our Clean Energy Boom.”
  7. Mahajan and others, “Updated Inflation Reduction Act Modeling Using the Energy Policy Simulator.”
  8. Ibid.
  9. The White House, “Justice40 Initiative: A Whole-of-Government Initiative,” available at https://www.whitehouse.gov/environmentaljustice/justice40/ (last accessed September 2023).
  10. Sum of all 24 agencies’ total funding made available in fiscal year 2022 through Justice40-covered programs. See Council on Environmental Quality, “The Environmental Justice Scorecard,” available at https://ejscorecard.geoplatform.gov/scorecard/ (last accessed September 2023).
  11. Federal Emergency Management Agency, “Louisiana: Jefferson Parish – Entergy Grid Hardening of Power Distribution to Support Resiliency,” available at https://www.fema.gov/case-study/louisiana-jefferson-parish-entergy-grid-hardening-power-distribution-support-resiliency (last accessed September 2023).
  12. Federal Transit Administration, “FY22 FTA Bus and Low- and No-Emission Grant Awards,” available at https://www.transit.dot.gov/funding/grants/fy22-fta-bus-and-low-and-no-emission-grant-awards (last accessed September 2023).
  13. U.S. Department of Agriculture, “USDA Invests Nearly $29 Million in Critical Infrastructure to Lower Energy Costs and Combat Climate Change in Rural California,” Press release, December 12, 2022, available at https://www.rd.usda.gov/newsroom/news-release/usda-invests-nearly-29-million-critical-infrastructure-lower-energy-costs-and-combat-climate-change.
  14. U.S. Department of Agriculture, “Biden-Harris Administration Makes Historic, $11 Billion Investment to Advance Clean Energy Across Rural America Through Investing in America Agenda,” Press release, May 16, 2023, available at https://www.usda.gov/media/press-releases/2023/05/16/biden-harris-administration-makes-historic-11-billion-investment.
  15. The White House, “What is Direct Pay (Elective Pay)?”, available at https://www.whitehouse.gov/cleanenergy/directpay/#rural (last accessed September 2023).
  16. U.S. Department of Agriculture, “Empowering Rural America New ERA Program,” available at https://www.rd.usda.gov/programs-services/electric-programs/empowering-rural-america-new-era-program (last accessed September 2023).
  17. Resources for the Future, “Inflation Reduction Act Will Decrease and Stabilize Household Electricity Prices,” Press release, August 4, 2022, available at https://www.rff.org/news/press-releases/inflation-reduction-act-will-decrease-and-stabilize-household-electricity-price/.
  18. Rachel Chang and others, “The Inflation Reduction Act Will Save Families Thousands of Dollars,” Center for American Progress, September 12, 2022, available at https://www.americanprogress.org/article/the-inflation-reduction-act-will-save-families-thousands-of-dollars/.
  19. Rewiring America, “The Electric Explainer: Key programs in the Inflation Reduction Act and what they mean for Americans,” available at https://www.rewiringamerica.org/policy/inflation-reduction-act (last accessed April 2023).
  20. Consumer Reports, “New Consumer Reports analysis shows rising gas prices ramp up savings for EV owners,” Press release, March 10, 2022, available at https://advocacy.consumerreports.org/press_release/new-consumer-reports-analysis-shows-rising-gas-prices-ramp-up-savings-for-ev-owners/.
  21. John Larsen and others, “Pathways to Paris: A Policy Assessment of the 2030 US Climate Target” (New York: Rhodium Group, 2021), available at https://rhg.com/research/us-climate-policy-2030/.
  22. Sally Hardin and Trevor Higgins, “Clean Energy Will Cut Costs for Families Across the Country,” Center for American Progress, February 25, 2022, available at https://www.americanprogress.org/article/clean-energy-will-cut-costs-for-families-across-the-country/.
  23. Rewiring America, “The IRA will deliver huge savings: United States,” available at https://map.rewiringamerica.org/ (last accessed September 2023).
  24. Congressional Budget Office, “How CBO Estimated the Budgetary Impact of Key Prescription Drug Provisions in the 2022 Reconciliation Act” (Washington: 2023), available at https://www.cbo.gov/system/files/2023-02/58850-IRA-Drug-Provs.pdf.
  25. U.S. Department of Health and Human Services, “HHS Selects the First Drugs for Medicare Drug Price Negotiation,” Press release, August 29, 2023, available at https://www.hhs.gov/about/news/2023/08/29/hhs-selects-the-first-drugs-for-medicare-drug-price-negotiation.html.
  26. Centers for Medicare and Medicaid Services, “Medicare Drug Price Negotiation Program: Selected Drugs for Initial Price Applicability Year 2026” (Baltimore: 2023), available at https://www.cms.gov/files/document/fact-sheet-medicare-selected-drug-negotiation-list-ipay-2026.pdf.
  27. Congressional Budget Office, “How CBO Estimated the Budgetary Impact of Key Prescription Drug Provisions in the 2022 Reconciliation Act.”
  28. The White House, “Biden-Harris Administration Announces First Ten Drugs Selected for Medicare Drug Price Negotiation,” Press release, August 29, 2023, available at https://www.whitehouse.gov/briefing-room/statements-releases/2023/08/29/fact-sheet-biden-harris-administration-announces-first-ten-drugs-selected-for-medicare-price-negotiation/.
  29. Ibid.
  30. Nicole Rapfogel, “5 Facts To Know About Medicare Drug Price Negotiation,” Center for American Progress, August 30, 2023, available at https://www.americanprogress.org/article/5-facts-to-know-about-medicare-drug-price-negotiation/.
  31. Arielle Bosworth and others, “Price Increases for Prescription Drugs, 2016–2022” (Washington: U.S. Department of Health and Human Services Office of the Assistant Secretary for Planning and Evaluation, 2022), available at https://aspe.hhs.gov/reports/prescription-drug-price-increases.
  32. Rapfogel, “5 Facts To Know About Medicare Drug Price Negotiation.”
  33. U.S. Office of the Assistant Secretary for Planning and Evaluation, “Marketplace Coverage and Economic Benefits: Key Issues and Evidence” (Washington: U.S. Department of Health and Human Services, 2023), available at https://aspe.hhs.gov/sites/default/files/documents/36e5e989516728adcc63e398b3e3d23d/aspe-marketplace-coverage-economic-benefits.pdf.
  34. Centers for Medicare and Medicaid Services, “Health Insurance Marketplaces 2022 Open Enrollment Report” (Baltimore: 2022), available at https://www.cms.gov/files/document/health-insurance-exchanges-2022-open-enrollment-report-final.pdf.
  35. U.S. Department of Health and Human Services, “Biden-Harris Administration Announces Record-Breaking 16.3 Million People Signed Up for Health Care Coverage in ACA Marketplaces During 2022-2023 Open Enrollment Season,” Press release, January 25, 2023, available at https://www.hhs.gov/about/news/2023/01/25/biden-harris-administration-announces-record-breaking-16-3-million-people-signed-up-health-care-coverage-aca-marketplaces-during-2022-2023-open-enrollment-season.html.
  36. IRS, “Inflation Reduction Act 1-year report card: IRS delivers dramatically improved 2023 filing season service, modernizes technology, pursues high-income individuals evading taxes,” August 16, 2023, available at https://www.irs.gov/newsroom/inflation-reduction-act-1-year-report-card-irs-delivers-dramatically-improved-2023-filing-season-service-modernizes-technology-pursues-high-income-individuals-evading-taxes.
  37. U.S. Department of the Treasury, “Remarks by Secretary of the Treasury Janet L. Yellen on Inflation Reduction Act, Progress on Modernizing the IRS,” August 2, 2023, available at https://home.treasury.gov/news/press-releases/jy1672.
  38. IRS, “IRS announces sweeping effort to restore fairness to the tax system with Inflation Reduction Act funding; new compliance efforts focused on increasing scrutiny on high-income, partnerships, corporations and promoters abusing tax rules on the books,” Press release, September 8, 2023, available at https://www.irs.gov/newsroom/irs-announces-sweeping-effort-to-restore-fairness-to-tax-system-with-inflation-reduction-act-funding-new-compliance-efforts.

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Author

Trevor Higgins

Senior Vice President, Energy and Environment

Department

Energy and Environment

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