Proponents of the sprawling law say it will improve Americans’ finances while cutting the federal deficit by $300 billion. Critics say it will lead to higher taxes, especially for businesses, and will be ineffective in bringing down decades-high inflation.
“Overall, this is a bill with many pieces,” said Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget, a group that advocates for deficit reduction. “Most households won’t see much change immediately, but some will see real reductions in what they pay for things like health care and energy.”
Here’s a look at how the Cut Inflation Act could affect your family’s finances now and in the future.
The main objective of the legislators was to create a new framework paving the way for cleaner and sustainable sources of energy. To that end, it includes $80 billion in rebates, including up to $14,000 in cash, helping households pay for green energy upgrades. The grants cover a range of improvements, including efficient heat pumps ($8,000 return per household), electric water heaters ($1,750) and electric cooktops ($840).
Homeowners can also receive a 30% credit for installing solar panels.
“There will be substantial tax credits to help with the clean energy transition: rebates for people who buy electric vehicles, install solar panels on their homes, make other types of improvements improving the energy efficiency of their home,” said Heidi Shierholz, President. of the Economic Policy Institute, a left-wing think tank. “This will make it easier for families to make these clean energy changes.”
Families who use bill financing to switch to greener technology could save up to $1,840 a year on energy costs, according to estimates from the nonprofit organization Rewiring America.
2. Tax credits for switching to electric vehicles
The new round of green energy incentives includes a high-profile $7,500 credit for people who buy new electric vehicles starting next year.
“The direct benefits won’t be immediate, but there’s a lot here, starting with the savings if you buy an electric vehicle,” said William Hoagland, senior vice president of the Bipartisan Policy Center.
Crucially, the legislation also offers a $4,000 credit to people who buy used electric cars, which could be an important step in steering more Americans away from gas-guzzling vehicles, said Joe Britton, executive director of the Zero. Transportation Association broadcast, at the Washington Post. .
“It’s going to be one of the really invisible catalysts,” he said. “Because once you get behind the wheel of an electric vehicle, you have a 95% chance of never going back. … Exposing Americans of all income levels to electrification will have a truly positive impact on our ability to make the transition.
The most immediate benefit for American families, experts say: faster tax refunds and more responsive IRS agents, thanks to $80 billion in additional funding to the Internal Revenue Service over 10 years.
“People will get their phone calls much faster,” Hoagland said. “And for individuals who are still waiting for their 2021 or 2022 tax returns to be processed, that should also happen much faster.”
The legislation also includes part of a program that would allow Americans to file their annual taxes directly with the IRS for free. It could save Americans 2 billion hours and $30 billion in tax filing costs each year, according to Emily DiVito, senior program manager at the Roosevelt Institute.
“A direct free file option could transform the experience of millions of people filing taxes – and therefore improve their experience of interfacing with their government,” DiVito wrote in a recent blog post, noting that it would more beneficial for low-income families.
4. Cheaper prescription drugs for seniors
It will take 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.
“The [cost reductions] are very sketchy,” said Jeffrey Singer, general surgeon and senior fellow at the Cato Institute, a libertarian think tank. “They take place a little at a time, but it’s going to make the Medicare beneficiary happier.”
In the immediate term, pharmaceutical companies will have to pay rebates from next year if they raise drug prices faster than inflation. There are also other benefits in store for Medicare beneficiaries: out-of-pocket costs will be capped at $2,000 per year starting in 2025; and insulin costs for people with diabetes will reach a maximum of $35 per month.
“If you’re on Medicare, your premiums and drug prices will start to come down — not suddenly or immediately, but you’ll see those costs go up more slowly than they otherwise would,” Goldwein said of the Committee for a responsible. Federal budget.
5. Lower prices on other items – maybe, eventually
Economists say the Cut Inflation Act is unlikely to reduce inflation, at least anytime soon.
It’s possible the legislation could eventually reduce prices by about 0.1 percentage point in about five years, according to an analysis of the University of Pennsylvania’s Penn Wharton budget model. But even then, analysts note that they have “a low level of confidence that the legislation would have a measurable impact on inflation.”
It’s also possible that some of the increased funding for legislation for farmers and rural development programs could help drive down the prices of crops like corn and soybeans within the next year or two, according to Bipartisan’s Hoagland. Policy Center.
Households across the country have faced rapidly rising prices – which are up around 8.5% from a year ago – on a range of essentials including groceries, gasoline and housing. Inflation eased slightly in July, but remains close to 40-year highs. The Federal Reserve rapidly raised interest rates in hopes of slowing the economy enough to drive prices down.
Allyson Chiu contributed to this report.
